Whittaker: Deflation favours buy-to-let
04-15-2015
As the UK looks in danger of plunging into deflation “buy-to-let will be a clear winner from this brave new world”, David Whittaker, managing director of Mortgages for Business, has predicted.
Ryan Bembridge
He anticipates deflation favouring remortgaging and Buy-to-let, while surprisingly he also expects deflation to result in house price growth and cheaper mortgage rates.
The 12-month Consumer Price Index stayed at 0.0% in February and March after falling from 0.3% in January according to the Office for National Statistics.
Whittaker said: "We have entered completely uncharted economic waters – whether or not the UK is in outright deflation right now in April. There will be massive implications for the world of mortgages.
"Counter-intuitive effects are already on the cards. Lower consumer price inflation could actually boost house price growth, as long-term borrowing costs fall and in turn mortgage rates improve even further.
"Already, record-low mortgage rates have been a stimulant for the property market. So if this potent diet continues then cooling house prices are more likely to pick up again."
This morning the Council of Mortgage Lenders reported that buy-to-let was the only area where lending volumes increased year on year.
But Whittaker isn't entirely optimistic due to a lack of political stability with an uncertain general election on the horizon.
He added: "In as little as three weeks' time we may not have a workable majority of any kind in the House of Commons.
"The last few weeks have already thrown jitters through the gilt markets, and interest rate swaps have halted their downward trend.
"Very soon, the emerging probability of an ultra-hung Parliament could throw economic models haywire with one flick of its unpredictable political tail."
Howard Archer, chief UK and European economist at IHS Global Insight, expects the UK to see deflation in April.
Indeed, he suggests the only reason the UK escaped deflation in March 2015 was higher air/sea transport and holiday prices due to the Easter break which unusually fell in March this year rather than April.
He said: "Mild deflation could very well occur in April given the reduced prices during the month from the earlier Easter this year and given the ongoing weakness of food prices.
"Furthermore, utility price cuts are still kicking in."