Hi, folks it’s Dr Ro here.
Greetings on this rather nice evening, actually, it’s beautiful, isn’t it? It’s chilly, but really clear. Excuse the dump in the background, I’ve just realized I set the camera up with that dump in the background. They left it onsite when they’re finishing off some of the work.
I thought I’d just share a quick message for all of you who are the budding property investors or existing property investors.
I know there’s various people talking out there in the market at the moment about the situation. I just wanted to add some more to some of the comments I’ve been making over the last few weeks.
Let’s just tackle the question about interest rates. So if you remember I did a reach out about three or four weeks ago I think it was now, I’m trying to think when the Bank of England dropped the rates down and people were saying, what do I think about that?
I said, look, ultimately, we’d like to see that passed on to us as property investors. In the past there’s been delays in that. I remember coming through 2008, 2009, 2010, I was heavily in the market at the time as many people that are out there teaching at the moment, weren’t even in the market when that happened. That was a very difficult time.
It’s a very different market today just so you know, so don’t try and compare the 2008 recession with the current one that we’re going into because rates were in a different place. Lending was in a very different place back in those days as well. We were still knocking on the door at the time of 85, 90, 95 percent, even 100 percent mortgages back in those days. And you had the ability to do almost like a same day refinancing, quick refinancing.
So although people are comparing this to 2008, there are aspects of it that are the same, but there’s many things that are different. So just be mindful of that.
When we’ve gone through changes in the past where the Bank of England dropped rates, that hasn’t necessarily been passed on through the lenders. And in fact, you may remember, I think the last time we had a big drop, maybe the last, but one time even the Bank of England were nudging the lenders to say, hey, pass this on to homeowners and investors as well.
The reality is that actually it has now been passed on or it’s certainly been passed on by some of the banks. I certainly received quite a lot of mail just recently on that front with all the properties that we had across the portfolio. So it has been passed on for those of you that are asking the question.
The other question I had from people was, do I think it’s going to shoot back up? My personal view and again, this is just my opinion it has been for about a year and a half to two and a half years now, I don’t really expect and I haven’t expected interest rates to shoot back up.
And if you’ve been to any of the events that I’ve done, whether they were free networking events or maybe a property training that I ran in the last few years, you would have heard me talk about the fact that I personally think that the banks are crystal balling and have been for some time. The crystal balling is basically being reflected by a long fixed rate mortgages, five years even on residential mortgages, 10 year fixed rate mortgages going out, very low rates.
And just to remind everybody how it works from a bank’s perspective is when they’re looking at interest rates into the future. If the banks are going to fix their rates down, for example, and this is going back over the last couple of years, if you look what they’ve been doing. If they anticipate interest rates to go up dramatically, then they have to hedge because want they don’t want to do is set their rates too low and lose out on the increase in interest rates.
Equally, if they expect the interest rates to be coming down or staying flat, they have to be mindful of setting their interest rates too high, because if they set their fixed rates too high and then the market stays very low in terms of interest rates, then they’re going to be shot out the market. Other people aren’t going to want to come to them as a bank. So the banks are very smart like this. And hence, we’ve been seeing these three-year, five year, in some cases 10 year fixed rate mortgages at very low rates.
So interest rates are low, have been low and fixed rate mortgages have been low. Question I’ve had is, do I expect it to go up?
Personally, I don’t. I think we are very much in the mechanism of the recession now, which has been heavily prompted and catalytically provoked by if that’s the right word, by Covid-19, which has been extremely difficult for everybody. All of us have been subject to it in different ways on a personal level, on a physical level, on a financial level. It’s had a really big play out and there’s a long recovery.
When you come out of a recession the banks are extremely mindful of this. We’re talking about the Bank of England versus the lending banks as well. But they have to be mindful of businesses literally getting up, dusting themselves down again, getting back on their feet, being able to finance their ongoing cash flow of their businesses, being able to finance the staff, buying equipment and tools in and getting supplies back in and borrowing money to do that.
Of course, if the cost of money is too expensive, those businesses are just not going to survive and the economy can’t take that. So there’s going to be I think they’re going to be proactive measures from the government. I do think we’re going to see local grants and things available continuing as we did in 2008. But it’s a very different market like I say, I think we’re going to see quite a long, drawn out process to this as well.
I mean, we are by a long shot out of this. You know, we’re talking about, I think, months ahead before we even start to see a shift back in the upside. A lot of the statistics, sadly, on the death rates around the world are getting more accurate now. I don’t personally believe China’s were particularly accurate and there’s a lot of dispute over that at the moment. But if you look at the effect it’s having on everybody both on a health level, on a financial level, companies are going to take a long time.
And although everybody wants to jump back in and start going out, socialising and buying things and the liquidity of the market will start to pick up. Liquidity, meaning the movement and the flow of money backwards and forwards. The currency markets will become more dynamic as well. We’ll see more of a bullish trend happening.
We will also see the property market and let’s talk about the property market will, as it did before, pick up. And it will pick up, I believe, quite radically, because the people that wanted to move or been itching to move or have just been in a position where they’re ready to buy will want to get back out and start to buy. So lenders will have an appetite to lend. That’s my personal view.
I’m not an expert in this, but my gut feeling is having spoken to, and I don’t know if anyone of you managed to watch the podcast I did with Harminder or listened to I should say, about two, three weeks ago now with Dr Robert Verkerk. He talked about potentially the next 12 months, by the time the population the virus has worked its way through globally to a point where, like any virus, it has this peak and then it drops off again.
And if you look historically back through viruses, going back to some of the major ones that happened, but all the small ones as well that we get on a on a yearly basis. They have this evolution when they kick through and they’ll go viral and you’ll develop the immunity to it. And this is partly why the whole lockdown is so important, because the system can’t cope with this massive surge at the moment. By locking us down again, there’s a different views on this, but ultimately it’s delaying the process of us getting the virus.
So whether you’ve had it or not, I don’t know. In theory, the immunity is there if you’ve had it. So by slowing it, we’re giving it the opportunity to get into the population in a slower rate and then the system deal with that. So I think we’re looking at probably realistically when things start to operate even reasonably back out in the market and doing things normally, maybe four, five months. That’s my view.
My other half, maybe has a slightly different view, she’s a bit more optimistic. But I don’t honestly know in terms of operationally in the property market, depending on whether certain segments of the market are allowed to open up, i.e. certain industries, maybe the restaurant industry possibly. People being able to view properties again, that type of thing, remote viewing. I don’t know. But we will start to eventually see it pick up.
Once that social stigma has been broken and as we had before I mean, the recession was very different 2008, 2009. But when people came out of it, the nervousness quickly dusted off. I think we’re going to see the same thing here because people want to get back up. They want to fight. They want to engage with others. But they also want to get the business going, they want to get revenue. And people will need to rent. I mean, I just want to stress this point.
I think people are renting for a long time, meaning that the people that maybe were financially a bit more stable now and were thinking of renting for a year or two, may have to rent for three or four more years.
Do I think it’s safer schools to open?
Personally, no. I’m sorry, I’m picking up questions as they’re coming in. I’m trying to read them from a distance. We took our children out before the schools actually closed down. We made that decision and it was probably the right one because several kids at the school actually did have coronavirus. My feeling is at the moment that if you open up the schools, you’re still bringing lots of families and kids together in one place and that dynamic is still risky and we still don’t know exactly how vulnerable our kids are.
So I’m just mindful of that.
I think for us, we’re just going to wait it out and play it safe. But also, I don’t want to be one of the people who propagates it. If you listen to the interview the other day with Rob he talks about the fact that you might be going to work and you might be on an escalator or you might push a door where somebody had the virus and it comes onto your hands. And if you happen to do this with your mouth or rub your eyes or something, some mucous membrane that can transmit to you or to somebody else, it may not even be that you get it, but it’s that you pass it on to somebody else.
This is where how can you control three or four kids in a school, for example, if they’re all coming from different places? So thanks for the question. Going back to the property side. So really my thoughts are that the market will pick up and that we need to get our sales up now, meaning that when our sails are up and the wind blows, we catch the wind. But if our sails are down, then the wind starts to blow and we go shit, we need to get our sails up and by the time we start doing our research and get prepared, talking to our lenders, etcetera. It could be a month or so, two months and we’ve missed the opportunity.
I found this in the last recession. So as we came out of 2010, eleven, twelve, the opportunities were there. And although I was living overseas and traveling there were still some good opportunities and the ones that were ready and had prepared for it were able to take advantage of it quicker than those that didn’t.
I think this is a lesson for everybody. If you’re brand new to property and you’re thinking, well, do I wait, let me give it four, five months and then start to do something. Now do your research now, start to look at the market. If you’ve enrolled onto any programs, education programs, things like that, plug into them. Go back and recap on them, self study at home, start looking at market indicators, start looking at different areas, because ultimately rents are going to be pretty much the same. Whether it’s three months, six months, twelve months down the line, we may see an increase or a drop in others.
But your average figures now will be fairly representative of what they’re going to be in three or four, five months’ time as we start to ease through. Equally house prices one could argue they may dip certain areas it probably already has dipped. That is the nature of the fact that we’re in covid-19, but we’ve also got the recession happening at the same time. So work your numbers based on your cash flow. If you’ve done cash flow analysis and you know what you’re trying to achieve, ultimately it’s still the same thing.
Look at what the typical interest rates are that are being offered at the moment. I mean, this is crazy. I was just online today and NatWest were offering a loan up to £50,000, seven and a half to 90 and a half thousand. They were offering loans at 3.2%. And the money is in your account same day. So the banks are out there. They are wanting to lend. And I think we will see the banks wanting to lend as we come out of the back end of this, but they’re going to be more mindful of who they lend to.
If you’re brand new and a novice and haven’t got any prep, research behind you, haven’t got any experience that might be slightly harder than somebody that’s a little bit more experienced. So this is why education is so important. Get the knowledge and getting the learnings as well.
My point is really, as my battery tells me, it’s going to die. Do make sure that you don’t back off the market at the moment. Use this as an opportunity to look. A friend of mine’s got about 30 or 40 properties he’s just analysed in the last couple of days, so do that. Go on to the typical websites.
I mean, a classic example would be go to some of the government websites like www.reading.gov.uk or Bristol.Gov.uk or wherever you’re looking go and have a look at their portals and see what developments are happening, what is happening in terms of the regeneration in those areas. Because this is all still part of the line up.
This is all still part of the government’s plan. There’s these things called unitary development plan, a local developed plans. And those plans still exist. They still have to be executed, albeit they may have been delayed slightly.
You can still do your research, you can still find out where the markets are, where the student markets are, where there’s demand hospitals and all the stuff that you’d be learning if you’re studying on property or you’re already a property investor.
I think it’s definitely a good time to be doing that research. I think that’s the main message I want to get across, plus some of the others that have come in as questions as well.
Hopefully that’s useful and I’ll get back to you in the next day or two with some other messages as a few more come in. I’ll just try and add to them as days go by and I’m going to sign out.
My family are inside so I shall speak to you all soon, Dr Ro signing out.
Disclaimer: This video or written publication does not offer investment or financial advice and nothing in them should be construed as investment or financial advice. Our publications provide information and education only. The information contained in our publications is not, and should not be seen as a recommendation to use any particular investment strategy. Always seek financial advice from an independent financial adviser around your own personal financial situation.