Transcription
Are we about to see a global financial crisis as stock markets around the world crumble? Well, that's the message we're being told by Sarah Breeden, who is a deputy governor for financial stability at the Bank of England. Quite rightly, she's very worried about the current global financial markets.
Two main factors, obviously because of the Iran war, there's a massive global energy crisis about to happen in terms of prices. And also, a lot of AI companies are very highly valued at the moment. Now, they might be worth an absolute fortune in the future, but are investors being a little bit too optimistic about the value of some of these companies? And if there are some crystallizations of valuations in the near future, it could cause the global financial markets to crash.
But what impact is that going to have on you and your property and the UK property market? Now, in times of financial crisis, people take money out of the stock market and they tend to put it into solid assets like gold, silver, and of course, property. Now, right now, there's a huge amount of uncertainty about property prices, about the property market that's fueled by things like the Renters' Rights Act. It's also fueled by concern about inflation and the impact that's going to have on potentially rising interest rates and the knock-on effect that can have on homeowners and also property investors. So, at the moment, the property market is fairly stagnant. Of course, there are some areas where the market's going up, some where it's definitely coming down, but many areas it's just kind of dead at the moment. There are just are not enough buyers who want to buy property. There are, of course, some buyers, but they are massively outweighed by the number of people who are desperate to sell their property.
So, I believe if we see interest rates go up, and it was interesting to see recently the Bank of England decide to leave their interest rates at 3.75. That's the second time in a row they've left it to wait and see what happens as a result of the Iran war. My concern is when we get inflation, I'm pretty sure we are going to get inflation because of the increase of food costs, obviously energy costs, in fact, anything that's in the supply chain is going to go up because of energy and fuel costs also increasing. So, I think we're going to see high inflation. We're also seeing quite high pay awards to the public sector. This is going to cause wage inflation. This means that the Bank of England I expect is probably going to increase the Bank of England base rates. That means it's going to be far more expensive for property investors and also for homeowners to pay their monthly mortgages. That will also have a dampening effect on the property market.
So, what's going to happen if people are pulling out of the stock market, they're not sure about if they should go into property or not? Well, I would suggest that actually, because of the uncertainty of property, it's a great time to go in. The thing about property is prices go up and of course they come down. It's cyclical, it's like any other market. But here's the thing, because we live in the UK, which has an increasing population, while supply is not growing as fast as it should, an increasing demand over the long term will see property prices rise.
So, should you be buying property now, taking money out of the stock and putting it into property? Well, it kind of depends. If you're looking for a short-term view, well, I'm not sure that's a good idea because we might see property prices come down if less and less people could afford to buy. However, if we look at a longer-term view, and whenever investing in property, I think you should look at the long view. If you've read my book Property Magic, my five golden rules, golden rule number four is we invest for the long term. You see, it's a bit like trying to guess the stock market. It's the same as trying to guess the property market, but even harder 'cause there's always a lag. And when the prices have gone down and they hit the bottom, and everyone thinks, "Right, now they're going to go up." No one knows exactly when that's going to happen, but if the sentiment is prices going to go up and that's sentiment from owners, the media, and the general public, then sellers are going to be less likely to do discounts because they've got to live with the hope that someone's going to come along and pay more for their property. Whereas when the market's coming down, when we have uncertainty, that's actually the best time to jump in.
Now, is it possible you could buy a property this year and maybe next year it's worth less money? Yes, that's possible if we had a UK property market crash. However, as long as you hold that property long term and as long as you look at the golden rules, number two is we make sure we buy in an area of strong rental demand. So if the tenant moves out, we can quickly and easily find a new tenant to come in. And golden rule number three, we buy for cash flow. In other words, the property must make money after paying the mortgage, the insurance, the management, all the fees, it must make money every single month. If it does, then in theory, we can afford to hold that long term because we know we can rent it out, we know it makes money, why on earth would you sell the property?
Now, can you make money short term? Yes, of course you can, but it's much better to play the long game and plan to hold property. And after all, the saying safe as houses is there for a reason. People invest in property because you'll never see property come down to a zero valuation. Even if a property is burned down, there's still a residual value of the land and the plot. So whereas some companies, particularly some of the AI companies, some of the startups, which are doing incredibly well, they absolutely could crash to zero, especially if a new, better AI comes out and supersedes what the original company's doing, then companies that have high valuations now could crash down to zero. That's not going to happen with property. The only reason that would happen with property is if we had a nuclear Armageddon and the entire UK was contaminated by radiation, then you could argue that you can't live there for 50 years. Yes, the value of the land would be zero. If that happened, there'd probably be a high statistic that you, I, and everyone else watching this video would be dead anyway, so I wouldn't really worry about that. We're always going to have an intrinsic value in property. And also, people will always need somewhere to live. That's why I like residential property as opposed to commercial property. There are some big advantages with commercial property, but that is far more susceptible to changes in the economy.
People get excited by the potential returns in the stock market. And if you look at the statistics, stock market over a period of time probably grows at about 12% per annum on average. Again, it goes up and down. Whereas the property market might only grow at about 7% per annum. So, therefore, people say thus you get a better return in the stock market. What that fails to take into account is the benefit of leverage, gearing. So, we can go and borrow money. So, for a 100,000 pound deposit, we could buy a 400,000 pound property. 300,000 pound being provided by a bank who would charge us interest for that. We might borrow the 300,000 and 20 years time we still owe the 300,000, but the value of that 400,000 pound property will have gone up, probably doubled or maybe doubled again. Might be worth well over a million pounds, but guess what? We still only owe the 300,000 pounds to the bank. So, at the end of the 20-year mortgage, we could sell that property, take the profit after paying the bank back, or we could refinance that property and go with another lender, which is what most investors do.
Now, compare that to the stock market. The same 100,000 pounds will buy you 100,000 pounds of shares. And probably good to diversify amongst lots of different stocks rather than buying one stock. Those stocks would have to do phenomenally well to give you as much profit as you could end up with your property investment in the long run. That's why, although I do invest in the stock market as well, I'm a bit cautious at the moment. I believe that property investing is the fundamentally best investment you can make. And I believe there's a window of opportunity. With so many big corporations coming in and interestingly, I was chatting in the office today, something like 19% of overseas investments in the UK in properties now coming from the US and Canada. Now, some of those might be private investors. I think many of them are institutions who are snapping up UK property. The majority is still people from Europe, but a lot of Americans are buying UK property. Why do you think they're doing that since there's so much property they can buy in America? It's because we live on this island with a limited amount of accommodation, an increasing demand for accommodation, rising rents, rising prices over the long term. That's why people are investing in the UK. And I think probably within the next 5 years, it's going to be very difficult for the average investor and even the average home buyer to get onto the property market. So now really is the time to do it. And when so many landlords are looking to sell, it's a great time to just come and secure some great deals.
With all the changes currently happening in the UK property market, it's more important than ever before for you to be fully up-to-date with what's happening with your finger on the pulse so you can spot the opportunities and make sure you avoid the mistakes that many investors are making right now. And every so often, the Property Investors Network pull together some of the top UK experts to run a virtual property exhibition. I'm sure you've been to the big physical exhibitions in London before where you have lots of seminars and exhibitors, but what we do is we get some of the top speakers who normally speak at these in London shows to come and share with you exactly what's going on, showing their decades of knowledge and experience to help you become a more successful investor. And because it's virtual, you can do it from the comfort of your own home, and it's completely free of charge to attend. All the details are listed below. It's going to be on Saturday, the 16th of May. By the way, if you've enjoyed this video, please come and like the video. Make sure you subscribe to the channel and hit the bell icon to make sure you're notified anytime a new video comes out. Until the next video, I really encourage you to invest with knowledge, invest with skill.