In the world of real estate and finance, timing can make all the difference between a shrewd investment and a costly mistake.
Today, with interest rates rising to levels not seen in more than a decade and banks uncertain about the future of the lending market and medium-term interest rates, they are likely to price fixed-rate mortgages at a premium, making them poor value for consumers who might find themselves locked into unfavourable terms.
In my view, it would be unwise to rush into long-term fixed mortgages at this moment.
Even the allure of a short-term fixed-rate mortgage is not enough to sway my caution. It is my belief that banks will adopt a defensive approach to pricing these mortgages, ultimately putting consumers at a disadvantage.
The current environment requires a prudent approach to financial commitments, and committing to a fixed mortgage might not be the wisest choice under these circumstances.
That being said, do not be scared of the current interest rates. The UK has experienced uncharacteristically low rates in the past decade, but if you were to look at historical data, the average from 1995 to 2022 was 5.62 per cent.
Not a bad time
For those contemplating entry into the property market or considering further investment, it is important to acknowledge that this is not a bad time to explore opportunities.
However, it is important to have confidence in your decision. I vividly remember buying my first property in 1992, a time when interest rates stood at a substantial 6.8 per cent.
While rates remained elevated for a few years, I was able to weather the storm because I had invested in properties with good yields.
Despite the current climate, my optimism about the long-term potential of the UK property market remains unshaken, for a few key reasons.
First, the UK is grappling with a significant undersupply of housing. Building restrictions, a shortage of labour and supply chain bottlenecks have subdued construction, which bolsters the market's inherent demand.
Second, income growth remains robust, a factor that contributes to sustaining the property market's vitality.
Third, the British penchant for property ownership persists; and many will rent in the interim if owning is beyond their immediate means.
Lastly, economic cycles suggest interest rates will stabilise and the property market will regain its equilibrium as it always does.
A long-term investment
When entering property investment, a long-term perspective is indispensable. Two, three, or even five-year horizons can be too short-sighted.
The optimal investment timeline ranges from five to 15 years. By aligning with this long-term outlook, concerns over short-term interest rates or momentary fluctuations in asset growth are less significant.
So why buy now? The answer lies in the opportunities that present themselves amid market uncertainties.
Prices have moderated and properties that are typically out of reach are now accessible. I know that I will be able to find tenants easily as the UK rental market is exceptionally buoyant, and even if my yield is not as high as I would like it to be, I can afford to weather the storm in the short term.
