This is potentially the most staggering news story I have read in a long time.
The London Evening Standard last week reported that banks are ‘desperately’ seeking people to lend to so as to meet the demands set on them by the British Government who want to see a healthy and active banking industry that is stimulating the economy. The problem is that it appears that banks are not surprisingly kind of cautious as to who to lend to.
So when faced with this dilemma – we need to lend – but we can’t lend to those who most need it – those that are a poor credit rating – who do we lend to?? – they have decided that the very people who naturally have very good credit rating would make excellent clients – those with huge salaries in senior jobs.
It turns out that among the top CEO’s of London City companies most have been approached to borrow large sums of money at very attractive rates of interest in some cases as low as 1.5%.
Of course these affluent individuals have the skills and capability to find many a home for such money which can earn easily a few multiples of the borrowing costs. This virtuous circle of course makes everyone happy:
- Banks are lending
- Banks are lending to low risk clients
- The UK Government sees their role being exercised through stimulated liquidity
- Money is flowing through the economy and driving up prices of shares and property – ??
It is this last comment that is of interest for in the Evening Standard article it actually cites the example of “carry trades” of currency investing whereby borrowed money in low interest countries (eg UK) can be invested in higher interest countries – example being New Zealand!
Could this flow of money from UK banks to affluent Brits be flowing into NZ property? – it would seem somewhat unlikely given the currency exchange between the UK and NZ of late. The long term exchange rate of around 0.35 has risen in recent months to over 0.45 meaning that our median priced house which a year ago at $430,000 would have cost £119,000 would today cost £153,000, whilst in NZ the median price has remained fairly static.
However despite this UK pound appreciation of our property prices; in just the last week we have witnessed a steady rise in the number of UK visitors to realestate.co.nz as a % of all traffic. The traffic has grown by over 12% – ahead of any other country going from 3.9% to 4.4% of all visitors to the site.
Alistair,
Lloyds Bank have been chasing well paid expats in Japan for years offering mortgage finance at rates of 3-4% (depending on the source country of investment). Much later, the NAB and ANZ got in on the act offering pretty much the same deal. The only catch was that one had to borrow in yen and and then switch to the target currency (and assuming all the exchange rate risks at the same time).
When the GFC hit, I know of one British expat who was harangued endlessly by Lloyds to top up his loans. However, quite a number of well-paid expats took up the opportunity during the boom years.
I think the increased interest in N.Z. properties by UK visitors is primarily down to dissatisfaction with life in the U.K. I have also considered the move to N.Z. as life in and around London is no longer so appealing. Once the U.K. ups interest rates from the current low of 0.5% i’m sure the exchange rates will swing back in favour of the pound and it will make even more financial sense to move to N.Z.
Clint
Appreciate your input to the discussion, the one consistency of the NZ economy is the volatility of the currency which of course only exacerbates these issues and attracts speculative carry trades on the NZ$ – so perpetuating the cycle!. Best of luck as the UK economy starts to head back to positive ground.