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The result of the “leave or remain” referendum was mostly unexpected, and the inevitable outcome was a sense of panic and gloom. This was reflected even among bridging lenders. The ASTL conducted a sentiment survey of members in the week following the referendum, the “positivity index”, a composite of several topics, reflected this:

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However, despite what their reservations may be regarding the economy, 75% of members still expect their turnover to rise or, at the very least, stay the same.   This reflects an underlying confidence in the future of bridging.

 

What about the property market as a whole?   There is no doubt that recent changes in taxation and SDLT have taken their toll.   However, in the longer term a cooling down of the higher-value market was inevitable. Uncertainty about bonuses and employment in the City have no doubt added to this slowdown. 

What then, about interest rates?   The expected drop in the Bank Rate didn’t happen.  Just as well, as it may have been taken as a vote of no confidence in PM Theresa May and her radically changed new cabinet team.

 

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UK base rates have remained unchanged at 0.5% since Thursday, 5 March 2009.   However minutes of the last Monetary Policy Committee meeting predict that this historically low rate is expected to drop still further in August.  There’s not much further to go, especially as unofficial leaks indicate that negative rates are unlikely.   What does this mean for the economy, for brokers, lenders and the man in the street?

 

The prime beneficiaries will be large companies which are highly indebted.  Some of these are termed “Zombies” by economists, as they are effectively the living dead, kept alive only by low interest rates and the reluctance of banks to admit defeat.   Exporters will benefit as the exchange value of the Pound, previously overvalued, drifts lower and lower.   On the other hand, the spectre of inflation looms large, only tempered by the reluctance of consumers to spend in an uncertain employment climate.   As per usual, pensioners will be battered as ever lower interest rates mean reduced incomes.  

 

The housing market is probably not going to be affected – it’s more affected by consumer sentiment and general economic conditions.  The expectation of future interest rate rises will be dampened, possibly making people more comfortable with long-term affordability issues.   What does concern me is that any interest rate drop, and the announcement of yet more Quantitative Easing, could be interpreted more as a panic measure than a carefully considered decision.   Hopefully we won’t, like Japan, land up in a long-term low-growth cycle.

 

Whatever happens, life will go on and people will adjust to the new reality sooner than expected.

 

 

A version of this article was published by Specialist Lending Solutions on 21.07.16