It is said the bank base rate will rise to a peak of 5.75% and then start to decrease. Maybe, maybe not. I’m doubtful if any of these experts know what the game plan is. There is the news on the mainstream media, and then there’s what is actually going on.
The case for purchasing property is a compelling one, it’s a real asset, which tends to rise given a long enough timeline. It also produces a stable monthly income.
I used to think buying property without getting funding was inefficient, as you can purchase three for example, with the help of funding. And there’s the acronym OPM banded about, meaning Other People’s Money, using the banks money to make money.
While there was a case for this in the past, I think there is a strong case for not taking any borrowing and purchasing deals in cash. This obviously means you’ll be able to do less, but more safely.
Over the years, we have had a few deals go sideways. The biggest pressure doesn’t come from the issue, it comes from the lenders. They will do what needs to be done to recover their position, the first charge on the asset and the loan agreement gives them pretty much full control.
I have come across a few investors, who refuse point blank to engage with any banks or lending institutions. Some from previous bad experience, and some because their Islamic faith forbids not borrowing but the payment of interest. This commandment is given with good reason. Going back in history those who engaged in money lending, or the old name ‘usury’ were frowned upon. Indeed, as I understand, it was the only time Jesus got violent, when the money lenders were conducting their business in a place of worship.
Now it is normalised, a given. If you wish to buy a property you will need to take a mortgage for the majority of the purchase price. This is in large part to the disparity between what the average person earns in comparison to the value of a house. The margin between these two has widened over time, increasing the need for borrowing to the point it becomes inevitable.
In this environment, with instability on many levels, there is a strong case for doing less deals, but in cash.
And if and when rates come down to very low levels, a low LTV loan could be taken, with the aim of clearing it, or being in a position to clear it at short notice.
This is a far more stable position to operate from in the current environment. Allowing one to focus on the speed bumps which inevitably will come without the pressure of lenders breathing down your neck.