On Monday US stocks and UK stocks experienced their sharpest drops since the financial crisis of 2008, with the Dow Jones dropping 7% and the FTSE 100 dropping 8% respectively. Markets around the world were reeling from the continued disruption to the world economy from Coronavirus which has now exceeded 100,000 cases around the world.
Italy is currently in a nationwide lockdown with residents banned from gatherings and unnecessary travel with the country currently struggling to contain the virus after it exceeded 10,000 cases this week.
That being said, there were indications in Tuesday and early Wednesday trading that the main Western markets were calming, with signs of recovery in the Dow Jones and FTSE 100. There had also been some turbulence thanks to a large drop in oil prices and Saudi Arabia unexpectedly increasing production, but these factors again appear to be calming down.
Much of the result of market turbulence meant capital and investment flooding in to safe havens such as gold, bonds and property. The price of gold held relatively steady despite plenty buying into the market, whilst bond yields dropped to some of their lowest in recent memory and property investment increased markedly.
The base line of such a cut will simply mean cheaper borrowing in order to stimulate the economy. From a property perspective one side effect is likely to be, that many will consider taking out more borrowing to invest into a quickly rebounding market following the election in December.
All early indications are pointing towards rising prices, rising yields and increased mortgage activity across the main lenders. Not just for residential either, but also for Buy To Let there appears to be a renewed enthusiasm across the board for this type of investment.
It wouldn’t be surprising for this to mark a little bit of a lift-off for the market as a whole. Yes, absolutely this is a serious and eminent threat that needs to be tackled and defeated but the point also stands for long-term investors that we know this will pass in time, and in the long term any rate cuts could signify significant value for them in the market should they move now and acquire more property.
It also has to be said that, similar to Governor of the Bank of England Mark Carney’s comments, rather than the financial system being the issue this time around, it could well be the solution to jittery nerves.
Whilst the shock in 2008 was due to systemic failings and a weak structure, this is due to economic disruption across the globe caused by health and pandemic. Governments across the world are indeed struggling to contain the virus at present, but China has demonstrated that over a relatively short space of time it is possible to stop the spread and regain control.
With football matches, sporting events and other large gatherings across the world being postponed, it’s hard to tell when exactly the world will be able to approach a relative return to normality but the prevailing wisdom seems to be that once it does there will be a marked economic recovery which could even spark positive growth in many areas.
With the chancellor’s spring budget also being announced this week, this could well be the foundation for a sharp and sustained growth in property and in Buy-To-Let.
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