If we take a step back and look at worldwide property markets from a distance, for the vast majority of people who own their home this will be the largest investment in their lifetime. Many will have bought property to leave for their children and as a consequence they will be looking to governments of the day to protect economies, protect wages and above all protect property markets. A fall in the value of a voter’s home is a surefire way to lose votes!
Since the 2008 US led mortgage crisis, which resulted in a worldwide recession, various governments around the world have introduced financial assistance for those looking to climb onto the property ladder. The UK government’s Help to Buy programme has been extended on numerous occasions and is unlikely to end in the foreseeable future. The simple fact is that unless people are able to afford their own property they will be forced to look at the rental market which will push prices higher and higher. This will lead to more people struggling to climb onto the property ladder hence government financial assistance in the short, medium and potentially the longer term.
The 2008 economic crisis was one which was foreseeable due to the simple fact that the US sub-prime mortgage market was too competitive and companies were operating on wafer thin margins. When you throw in the fact that many of those who were awarded sub-prime mortgages would never be able to pay them back, surely governments should have seen the financial crisis coming?
As a consequence, quantitative easing has been a phrase used in many countries around the world as a means of pumping money into the financial markets to ensure the wheels of finance continue to move. The reality is without assistance by the Bank of England, European Central Bank and the Fed, the likes of the UK, Europe and the USA would have been in real difficulty. Quantitative easing is still ongoing in some countries around the world and even where quantitative easing has been reduced or ended other forms of financial assistance is still available to many operators in financial markets. Quite simply, governments around the world will again do their best to protect economies from a protracted period of recession.
Even though the press has made much of the recent increase in US base rates, with further increases to come in 2017, rates are still at historically low levels. In the UK cheap finance has to a certain extent helped people to remortgage their properties and indeed many people have benefited from low interest rates when looking to climb onto the property ladder for the first time. UK base rates are unlikely to increase significantly in the short to medium term because this would cause a nightmare scenario with many people struggling to cover any future increase in mortgage payments.
Recent action to limit the availability of UK property to overseas investors has again received much press comment. However, the fact is that overseas investors (who are benefiting from a reduction in sterling exchange rates) are to a certain extent, although probably less than many people think, helping to support UK property prices. So, these subjects are just three of many which show that governments around the world will literally do anything to support property prices which are the heart and soul of many people’s wealth going forward.