Today the Bank Of England (BoE) cut interest rates to 0.25%, the lowest level since 2009. This is in response to data reporting a shrinking economy, and the perceived risks of Brexit.
How might this affect investors, particularly those interested in HMOs?
Please note that we are not professional advisors. Nor are we regulated. We are offering the benefit of our experience which is predominantly informed by the 2008 crisis.
The 2008 crisis saw interest rates drop, property prices fall, and mortgage lending all but disappear.
Many investors who had bought property at the top of the market fell into negative equity. These investors were only kept in the game because the low interest rates meant they had great cashflow. They weren’t forced to sell.
There were lots of house owners who were forced to sell however. And these properties were snapped up by investors.
We believe the current and short-term future market offers these sorts of buying opportunities now.
But when should you buy?
“At the bottom of the cycle,” investors who are recently off a course will cry.
They will miss the best deals and will be trying to buy when the market is in an upswing again. They will still make a good return as nothing compares to the income available from HMOs, but they won’t do as well as investors who are buying now.
The reality is that it’s impossible to call the bottom of a slump. If you wait for it, you will miss it. We saw it happen last time around.
The investors who will make the most money from the current market will be buying from now until interest rates go up again. They will average out their purchases over a period of a slump (if it actually happens).
Plus, they will hold the properties for the long-term and enjoy the income that HMOs offer.
After that, they will return to carefully selecting their properties as they become available.
So what is the impact of todays interest rate cut for HMO investors? It depends on whether you want to adopt the much-vaunted Warren Buffet approach of buying when others are selling, or to nervously wait until it’s too late.
You can of course make great returns from HMOs in a strong market, but the extra few percentage points of return are to be found in the kind of market we have now.