The Debt-Laden economic plan

How did we get here? Well, several reasons, Brexit, Covid, Ukraine war and terrible policies. But let’s look at the most recent changes.

Thanks to Kwasi’s most recent unveiling of the highly controversial mini-budget last week which involved a £45M debt financed tax cuts, has led to the pound falling to a record low against the dollar. This would be a perfect time to buy if you are a cash heavy/rich in US dollars.

The Bank of England has raised interest rates across the UK, from 1.75% to 2.25% – the highest level since 2008. The 0.5% increase marks the seventh rise since December 2021. This takes borrowing costs to their highest level for 14 years. What’s next? Well, projected borrowing is to hit 6.25% by May 2023, after the chief economist of the bank of England, warned against this ‘debt-laden’ economical plan.

 Interest Rates and Mortgages

What does this actually mean for mortgages and rates? Climbing interest rates mean that homeowners on variable rates (around 10% of the population / 7 million people) will see an immediate increase in their monthly mortgage payments.

In particular, borrowers who stretched their budget and are now having to factor in higher costs of mortgages whilst their budget is being eaten into by the rise of interest rates.

If they are unable to afford this, it would lead to another property market crash.

The chaos in the market continues as the majority of UK lenders have suspended their mortgage products for a number of weeks, whilst they reprice them. Fixed mortgages have become far and few in between.

Where Hectocorn adds value is by having access to international lenders who also have an interest in the UK property market. When one door closes, another much bigger door opens. If you are in a position to do so, it is worth locking in rates before rates continue to increase.

 What discount can I get in London? (said every American)

All eyes here – the flow of money is clear.  US debt funds, and US investors are currently utilising the current economic situation in London. The dollar, at it’s all time high, is now looking for new homes.

We saw how during the recession of 2008, investors utilised the situation by buying distressed assets across London and doubling their investments in a short period. Would this time be the same?

Perhaps, it’s common knowledge that money is made during turbulent times.

 Property Prices during Inflation

The residential property prices in the UK have increased dramatically since the start of the Covid-19 Pandemic. The price of an average UK property increased by 15.5% in the 12 months to July 2022. This is the highest annual inflation rate recorded in the UK since May 2003. 

On the other hand, as the recession starts to take over we expect to see a decrease in property prices across parts of the UK, therefore ultra-high-net-worth individuals could have the upper hand in securing the best deals, when it comes to long-term investments. 

How rising interest rates affect investors? 

Higher interest rates will affect investors in many ways, both short-term and long-term. Here is a breakdown of how different investors may be impacted by the rising interest rates.

Equity Investors: As interest rates rise, the stock market usually falls – this is because investors flee from high risk investments and sway towards large stable companies which tend to perform much better when the stock market falls. 

 Fixed Income Investors: During a period of rising interest rates, investors are likely to invest in short-term securities as these investments are less susceptible to risk. 

Savers: In most cases savers will also benefit from higher interest rates, as rising interest rates could boost the annual percentage yield on your savings accounts and certificates of deposit could increase as a result. 

 How rising interest rates impact ultra-high-net-worth individuals? 

As interest rates and inflation rises, high-net-worth investors should look at various options to diversify their investment portfolio with investments that are less impacted by interest rates, inflation and other external factors – such as real estate and gold. 

In most cases Real Estate can be a good investment during economic downturns for ultra-high-net-worth individuals – opening various opportunities for investors to purchase rental properties at a discounted price. 

Investing in real estate can boost your passive income and help establish a steady cash flow. As the value of real estate across the UK is likely to increase in value over time, with an average growth rate of 2% per year – investing in property can act as a useful hedge against inflation, as the prices rise the value of your property is likely to appreciate overtime. 

–      Are you looking at your options to make sure your property portfolio is protected?

–      Would you be making money during this market and investing where others hold off?

–      Are you currently looking at getting your ducks in a row, so that when the markets continue to change you are in the best situation to utilise the opportunities presented?

If you answered yes to any of these questions, contact @Hectocorn to find out how we can help.