Rocketing UK Interest Rates Prompt a Panic Selling of Property Funds
Since the beginning of the year returns on the UK property market funds have fallen sharply with investors fearing that they are no longer lucrative.
Property funds have attracted billions from investors in recent years, the likes of which have been encouraged by an escalation in prices that ultimately resulting in a tidy return, unfortunately those investors have been met with a reality check in the form of hiking interest rates. With the 5.75% base rate rise from the Bank of England, and many expecting a further increase to 6% it is not surprising that many investors are becoming increasingly worried in the market.
Deloitte adviser Roger Bootle warned rates could put Britain’s low inflation ‘more under threat than at any time in the last 10 years’. Amidst fears of an unstable property market, shares have seen a major 30% loss since January and with dividends at there lowest ever, JP Morgan Chase & Co have made suggestions that this already depreciating market has more room fall.
This month, two of Britain's biggest property funds, Norwich Union and New Star’s Property Unit Trusts’ shocked investors by slashing the value of their units. For the investors, it means that the funds will be reduced in value by 4.72% and 3.9% respectively. In a bid to stem panic withdrawals, this rate reduction has spread to other companies such as Prudential and Standard Life, who have also introduced price cutting penalties in a bid to retain investor funds.
While rates were low investors borrowed cheap money and ploughed it into property funds, pushing up values up to record levels. With £175 billion borrowed over the last 2 years, investors are pulling in their purse strings as they find it harder to pay off their debts.
With overseas property prices at an affordable and profitable level an impressive number of UK investors are turning to this market as opposed to UK REITS. Recent statistics revealed that British citizen have invested over £23 billion in overseas property in Europe with a hiked interest in the new emerging markets.
Property funds have attracted billions from investors in recent years, the likes of which have been encouraged by an escalation in prices that ultimately resulting in a tidy return, unfortunately those investors have been met with a reality check in the form of hiking interest rates. With the 5.75% base rate rise from the Bank of England, and many expecting a further increase to 6% it is not surprising that many investors are becoming increasingly worried in the market.
Deloitte adviser Roger Bootle warned rates could put Britain’s low inflation ‘more under threat than at any time in the last 10 years’. Amidst fears of an unstable property market, shares have seen a major 30% loss since January and with dividends at there lowest ever, JP Morgan Chase & Co have made suggestions that this already depreciating market has more room fall.
This month, two of Britain's biggest property funds, Norwich Union and New Star’s Property Unit Trusts’ shocked investors by slashing the value of their units. For the investors, it means that the funds will be reduced in value by 4.72% and 3.9% respectively. In a bid to stem panic withdrawals, this rate reduction has spread to other companies such as Prudential and Standard Life, who have also introduced price cutting penalties in a bid to retain investor funds.
While rates were low investors borrowed cheap money and ploughed it into property funds, pushing up values up to record levels. With £175 billion borrowed over the last 2 years, investors are pulling in their purse strings as they find it harder to pay off their debts.
With overseas property prices at an affordable and profitable level an impressive number of UK investors are turning to this market as opposed to UK REITS. Recent statistics revealed that British citizen have invested over £23 billion in overseas property in Europe with a hiked interest in the new emerging markets.
posted by Obelisk International at 12:09 pm
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