So what is going to happen next in the economy, and how does this effect us as property investors?
To be forewarned is to be forearmed and all that, so it makes sense to try and read the signs and interpret what they could mean.
And perhaps one way of working out what might happen in the UK is to look at what happening in the USA. After all, they have the same pandemic induced problems, and give or take, have tried to deal with the resulting economic problems in a similar (if not identical way).
So what have the Fed done (that’s their equivalent of the Bank of England)?
They’ve printed money on an almost unbelievable scale, and they haven’t finished yet. There’s more to come.
of course, in this day and age, there’s no actual printing – it’s more money creation, and it’s all done on a computer screen.
But the effect is the same.
They want to create money to keep interest rates low.
And there is still the possibility that interest rates could go negative.
And, and this is the real news, the Fed have said ….
a) they aren’t anticipating raising rates again for years (at least 2 but maybe 5)
b) they are relaxing their approach to inflation.
Yes, inflation is no longer the enemy, it’s now a friend and the Fed are going to encourage it.
Well, the big danger at the moment is deflation. and that can be a much a bigger problem to an economy than inflation.
But if they can get through deflation and creation inflation, that will also have the effect of devaluing all of the loans (in real terms) that are being created on computer screens to bail out individuals, businesses and the Government.
Ok, that’s the USA but will that happen here as well?
I don’t know, but I’d guess yes.
It would make a lot of sense for the Bank of England (and the Government) to devalue the national debt etc in real terms by having a few years of inflation.
The figures are now off the scale and even beyond eye-watering.
The UK national debt is now more than £2 Trillion – and is more than GDP.
So, as we are effectively broke, why not try and inflate our way out of it?
What does this mean for us as property investors?
A few things ….
a) interest rates probably aren’t going to increase (much) for years.
b) in the short term to medium as the economy struggles property prices will probably fall (we looked at this last week)
c) if we get through deflation into inflation property prices might well be pushed up
d) if we get through deflation into inflation the value of any mortgages we have will be devalued in real terms – hurrah! : )
So in a few years we could have low interest rates, rising property prices and inflation eroding the real value of our mortgages.
Sounds great doesn’t it, but we need to get there first, and I predict quite stormy economic times ahead in the short term.
Anyway, I tell you all about it in the video. It’s about 6 mins so please grab a cuppa and put your feet up.
Here’s to Successful Property investing
(ex) Chartered Surveyor, author and property investor
PS. By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same.
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