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Playing The Long Game

Are landlords heading for the exit too soon? Peter Hemple reports

We all live under the same sky, but we don't all have the same horizon - Konrad Adenauer.

Adenauer knew how to play the long game. He was Mayor of Cologne when the Nazi party came into power in 1933 and, while Hitler respected him, they had opposing political views. Adenauer had his home seized, his bank accounts frozen and was thrown in prison several times. But he waited. Eventually, many years later Germany lost the war and he became the first Chancellor of West Germany in 1949. He led the country from ruins to a productive and prosperous nation until 1963, when he stepped down as Chancellor at the age of 87 (he continued working as chairman of the party until he was 90). Playing such a long game it is likely that, given different circumstances, he would have made a great property investor.

In this article we will try to look beyond the two-year horizon of higher tax bills for landlords and take a longer, 10-year view on base rates, mortgage rates and inflation. The important thing to realise from the off-set is that we have no real idea where any of those three markers will be in 2028.

For example, if you were asked right now to say what the UK base rate was exactly 10 years ago you would most likely not know the correct answer, which is 5.0%. That is because the base rate has been under 1.0% for more than nine years now, but it seems like even longer. Also, very few people thought that all those years ago that when the Bank of England (BoE) slashed the base rate to 0.5% it would still be no higher in 2018.

The reality is that in 10 years’ time the UK base rate could just as easily be negative, for example at -1.0% (due to a horrible Brexit and/or another global recession), as it could be at 5.0% (due to oil returning to $150 per barrel and/or the BoE trying to prop up a very weak Sterling).

You only have to look around the world at other national bank rates to see how unpredictable they can be. Switzerland for example has seen its base rate fall from 2.75% to -0.75% over the past 10 years. Sweden has gone from 4.5% to -0.5% during the same period. The less developed a country is, the wilder the ride can be for interest rates. If you look at Turkey for example, 10 years ago it had an interest rate of around 16%, which fell to just 4.5% around five years ago, but has now increased back up to 8.0% and it is expected to keep rising as the Turkish government aims to stop the continued slide in the value of the Turkish Lira.

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