I had an interesting chat with a Moorgate landlord who owns a few properties in the town. He popped his head in to my office as his wife was shopping in the area. We had never spoken before (because he uses another agent in the town to manage his Rotherham properties) yet after reading the Rotherham Property Blog for a while, the landlord wanted to know my thoughts on how the recent interest rate cut would affect the Rotherham property market.
I would also like to share these thoughts with you.
It’s been a few weeks now since interest rates were cut to 0.25% by the Bank of England as the Bank believed Brexit could lead to a materially lower path of growth for the UK, especially for the manufacturing and construction industries. You see for the country as a whole, the manufacturing and construction industries are still performing well below the pre-credit crunch levels of 2008/09, so the British economy remains highly susceptible to an economic shock.
This is especially important in Rotherham, because even though we have had a number of local success stories in manufacturing and construction, a large number of people are employed in these sectors.
In Rotherham, of the 46,524 people who have a job, 6,384 are in the manufacturing industry and 4,071 in Construction meaning
13.7% of Rotherham workers are employed in the Manufacturing Sector and 8.8% of Rotherham workers are in construction.
The other sector of the economy the Bank is worried about, and an equally important one to the Rotherham economy, is the Financial Services industry. Financial Services in Rotherham employ 1,346 people, making up 2.9% of the Rotherham working population.
Together with a cut in interest rates, the Bank also announced an increase in the quantity of money via a new programme of Quantitative Easing to buy £70bn of Government and Private bonds. Now that won’t do much to the Rotherham property market directly.
However, another measure also included in the recent announcement was £100bn of new funding to banks. This extra £100bn will help the banks pass on the base rate cut to people and businesses, meaning the banks will have lots of cheap money to lend for mortgages…
This will have a huge effect on the Rotherham property market.
That £100bn would be enough to buy half a million homes in the UK.
It will take until early in the New Year to find out the real direction of the Rotherham property market and the effects of Brexit on the economy as a whole, the subsequent recent interest rate cuts and the availability of cheap mortgages.
However, something bigger than Brexit and interest rates is the inherent undersupply of housing (something I have spoken about many times on this blog and the specific impact on Rotherham). The severe undersupply means that Rotherham property prices are likely to increase further in the medium to long term, even if there is a dip in the short term. This only confirms what every homeowner and landlord has known for decades…