4 Things About Interest Rates

Although it may not seem like it at first, interest rates really are interesting. High rates are great news for savers but bad news for borrowers and vice versa. Regardless of whether you’re a saver or a borrower, it’s important to understand 4 key points about interest rates.

For savers interest rates are in a race against inflation

Life is often a balancing act between conflicting goals and possibilities. In financial terms, this generally boils down to risk versus reward and/or cost versus benefit. Higher-risk investments can offer the possibility of great returns but, pretty much by definition, there is also the possibility of losing your initial investment. Cash savings can be viewed as safe in the sense that there is a relatively low risk of the saver losing their deposit, but if inflation (the cost of living) outpaces interest rates (the return on investment), savers can find their nest egg losing its value in real terms. This can be particularly challenging for older people on fixed incomes (pensioners) who do not necessarily have the long-term investment horizon of the younger generation but who do have a need for a reliable source of income to maintain themselves.

The interest rates available to consumers may be completely different to central-bank rates

About once a month, the press reports on the activities of the Monetary Policy Committee of the Bank of England, which sets the Bank of England’s interest rates. These are the rates charged (or paid) to banks which borrow from or deposit with the Bank of England. These rates may then feed through into consumer products such as savings accounts, mortgages and credit cards, some of which track this base rate. Some products, however, are fixed-rate and hence are unaffected any changes to the interest rates set by the Bank of England for the life of the fixed-rate deal. The key point to understand is that the interest rates offered to consumers are influenced by a number of factors as well as the base rate. Some of these are generic, such as what the banks think of the economy in general. Some, however, are specific to each individual, such as their credit history. Then, of course, there is the simple fact that banks need to pay their own bills and make a profit for their shareholders.

How do interest rates affect the market?

It’s usually considered that rising interest rates are bad news for stock markets. Reduced spending on goods as businesses and consumers borrow can cause stocks to drop. This is only a part of it though as different types of investments see rate rises differently. For instance gold may appears less shiny when interest rates are high as it doesn’t pay interest and can be less attractive to store.

The impact on property investment is found when combined with mortgages and higher interest rates. Mortgages become more expensive making buy to let less profitable. Savvy developers however will watch the economy and know when to hold back on new build. This can then increase a demand for property in that area meaning that the returns in development can still be high.

As with all investments, there is no hard and fast rule and you can lose as well as win.

Interest can be simple or compound

With simple interest, the interest payments are calculated purely on the basis of the initial sum deposited or lent. So, for example, if you deposit £100 then the interest you receive will always be based on that initial £100. With compound interest, however, interest is calculated on a rolling basis. Hence for example, if, after the first year you had received a total of £10 in interest payments, your next year’s interest payment would be calculated on the whole £110 rather than just the £100 you initially deposited. This is great news for savers but, of course, terrible news for borrowers and is part of the reason why those who take out high-interest credit can wind up paying more in interest than they borrowed to begin with.

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Will The General Election Bring Joy To Buy To Let?

From a political perspective, UK-based buy-to-let landlords have had little celebrate over recent times. New affordability criteria for (re)mortgaging, the controversial “right-to-rent” scheme, and the tax “triple whammy” have hardly left buy-to-let-investors in the UK filled with good cheer. Nevertheless, the buy-to-let market continues to hold strong, there’s a very simple reason for this. In the UK there is a chronic shortage of housing in general, coupled with a significant percentage of people for whom renting is clearly the best choice for their life stage. The fact that international investors are making the most of the weak pound to buy up UK-based assets is merely a reflection of this, rather than a key driving force for behind the strength of the market. Now we have a forthcoming General Election, could this provide a welcome boost to buy to let? Answering this question requires looking at three others.

What is the impact of having an election?

Elections, fundamentally, are a choice between the status quo (the current government or their direct successors) and change and any time there is the potential for change there is an element of uncertainty. This means that the period just before an election can, in many ways, be the equivalent of a person holding their breath while they wait to see what is going to happen, hopefully followed by a sigh of relief. It’s also worth noting that even when an election result is as widely expected, it can take a little while for people to absorb the fact and decide what, if anything, they need or want to do about it. In the short term, that may mean that the buy-to-let market is “on hold” in many respects, until everyone concerned has a clearer idea where they stand.

Who will win the election?

People may feel cynical about opinion polls these days, but it’s a hard fact that Theresa May had to ask parliament’s permission to call an election about three years earlier than scheduled and therefore it’s a reasonable assumption that she thinks she can win it, or, perhaps it would be better to say, she thinks her opponents can’t. For their part, her opponents, theoretically, have a lot to gain, in that they have at least some sort of chance of taking power, and very little to lose in that the election will only extend the Conservatives’ mandated by another two years, assuming they win. A quick scan of newspaper headlines reveals that this seems to be a widespread assumption even former Labour leader Tony Blair saying that he expected Theresa May to win it.

What is the Conservatives’ attitude to buy-to-let?

If we assume that the Conservatives win the election, then it also seems reasonable to assume that, at least in the beginning, they will carry on along much the same path as they have been on so far. This includes a promise to “fix the broken housing market”. That’s a pretty broad statement, but the last couple of budgets give an indication of what the Conservatives currently see as their preferred approach. There has been money to build more new homes and higher taxation on buy to let. At current time, the government is also discussing a ban on letting agents’ fees to tenants. In short, the government seems to be trying to make it more of a buyers’/renters’ market. The problem is that the main reason housing in the UK has long been a sellers’/landlords’ market is because of the lack of supply and this is highly unlikely to change overnight or even in the next five years. What may well disappear are “amateur” landlords, possibly to be replaced by “buy-to-let” housing funds, which would allow people to invest in the buy-to-let market without actually becoming direct landlords. This would allow for a consolidation and, indeed, professionalisation of the market and perhaps create a more effective industry force to allow landlords to get their point of view across to decision makers. So, in short, although the election may cause some short-term pain in the buy-to-let market, it has the potential to bring a lot of longer-term benefits.

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Phoenix House, East Grinstead

We are very pleased to report the acquisition of the property known as Phoenix House, East Grinstead.  The site comes with permitted development rights to convert it from office accommodation to residential units.  The building is ideally located in the town centre and has parking for 60 cars.


Work has already started!





Mick Rawlinson


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Cheltenham Site Update

Timber frame construction will commence on site 14 Oct 14, at which point we will see the site really take shape.

The frames are now ready for delivery…


Work has continued on the footings with concrete now poured.





Mick Rawlinson


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Cheltenham Site Update

The sun keeps shining on Cheltenham which means the site team are happy whilst working outside.

Chris replaces Paul as the site agent who will see the build through to completion.  Paul is moving to another Bastien Jack Ltd site.  Chris has impressed everyone with his pragmatic approach to getting the job done properly and on time and budget.  We’re very pleased he’s working with us.

The drains are now in and the supports have been positioned for each plot.


Each plot has been pegged out and the location confirmed.

The site team have cleared and tidied the wall of the Honeybourne Line.

The Archaeology consultants have been on the site and monitored progress, and have declared they need no further input.

Work continues to plan.



Mick Rawlinson



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Cheltenham Site Update

The remediation work is complete and we are now ready to ‘come out of the ground’.


The groundworks started on Monday 8 Sep 14, to position the ‘Rafts’ the property will be built on.


The timber frame is now being manufactured and due for delivery in 3 to 4 weeks time.



Mick Rawlinson


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Cheltenham Site Update

All is going (almost) to plan and we’re very pleased with progress.  The demolition is coming to an end.  There was a slight delay caused by the discovery of asbestos in the early stages of the project, but that matter is now in hand and work continues apace.  The most notable bit is the size of the site now the buildings are almost cleared.


We also have an external reclamation company on-site cleaning bricks.  Paul, our Site Agent took a pleasing telephone call from one of the neighbours complimenting the team on a superb job so far.  The caller went on to say they couldn’t believe the difference the removal of the engineering works has made to the view and the feel of the area.  They added they are confident that this will raise the value of their property and those in the area.


The local authority have now allocated each property an official street address.



More to follow next week.



Mick Rawlinson


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Could this be the Best Property Investment Opportunity Available Today?

It’s a bold title, but I really do believe it.  Simple, out of the box thinking by clever people has probably produced the property investment opportunity to beat all others.

Sure, you can invest in bricks and mortar by buying a property, putting a tenant in it and collecting the rent each month.  Nothing wrong with that.  If you choose correctly, you’ll make a return of somewhere between 4% and 8% each year and hopefully get some capital growth along the way.  Brilliant.

However, there is another way.  There has been a lot of talk about Joint Ventures (JV) over recent years, and I believe they are now ‘coming of age’.  They used to be as simple as giving someone your cash, and they would apply their skills set, buy a property, carry out whatever work was required then either sell it or rent it out; each sharing the profit 50/50.

A joint venture is ‘a business arrangement where 2 or more parties pool their resources for the purposes of accomplishing a specific task.’  

There is a small army of people who will offer to take your money and invest it and share the profit, but there are a number of hazards here.  The immediate concern is ‘who is this person’?  What is their background, track record, what resources do they have, what is the exit route, what are they likely to buy, and can you trust them?

Investors have been put off Joint Ventures because they can lose some control by letting someone else make all the decisions, yet the investor holds the security (or the mortgage) and if things go wrong it is their credit record that takes a hit.

The other stumbling block of course is division of profit, and it is this that is often the deal breaker.  Why would you share what little profit is made each year with someone else, when you continue to hold the mortgage and take all the financial risk?  Trust me, if things go wrong, you’ll be left to sort out the legal mess yourself.  The other partie will be long gone.

And do you really need someone-else to help you buy a property and stick a tenant in?  Let’s face it, it’s not difficult, in-fact it’s one of the most simple legal processes we’ll ever voluntarily put ourselves through.

So what are the options?

There are a number of options here.  Let’s just say that if you were to put your money into a UK Residential Property Fund, then you are in effect doing a joint venture with ‘an entity’ and hoping to make a return.  Incidentally solid property funds tend to deliver about 6% to 8% per year.

Standard buy to let returns are (as mentioned above) in the region of about 4% to 8% per annum, and there is the hope of capital growth, however returns can be eroded by maintenance and mortgage costs, as well maintenance costs.

You have to ask yourself, ‘what really are the benefits of a Joint Venture’ and think hard about what it is you want to achieve.  Does a JV really do what you want it to?  And what else is available in terms of other businesses that help you get on the buy to let property ladder?

Some Joint Ventures are now becoming so sophisticated they have the potential to seriously outperform traditional buy to let investments!

Up until recently Joint Ventures have been a pretty boring way to slowly make money, and they do (to some degree) work.  But the industry has moved on, and a new breed is emerging.  We can trace the roots back to the Financial Services industry.

Fund managers, Independent Financial Advisers and their legal teams and support staff all work in a highly regulated environment where the rules to raise money are ruthlessly enforced by the Financial Conduct Authority.  The rules they follow are complicated and exhaustive.  But, once they have an appropriate legal structure in place and begin to raise money, the results can be worth-while and everyone benefits.

In addition to this, the recession has forced property developers to look at new ways to raise the cash they need since the banks ran out of money and no longer supported property development, so they turned to the financial services industry for help.  I say ‘forced’ because the money they raise from private investors on a Joint Venture basis costs them more.  Where a bank would lend them money at say 6% per year previously, a private investor will demand more; perhaps even a share of the profit.

Apply some clever thinking to the very basic fund structures and systems used in the financial services sector, and translate that to the buy to let joint venture as we know it, and you can potentially accelerate the profit back to the investor and see enhanced returns in a relatively short space of time.

We all know property is for the long-term, but there are people who don’t like their capital tied up for long periods, but want to get exposure to the property market.

The new breed of Joint Ventures are carefully structured to maximise the profit back to the investor, in that they are efficient in terms of the tax they pay, but also add a level of security of funds.  They are definitely armchair investments and offer the potential to seriously outperform standard buy to let returns.

Why can’t I access this opportunity?

This type of opportunity is restricted to those who physically have the cash to hand, or access to their cash within a short space of time.  These projects are strictly limited to a finite number of people, who understand what they are investing in and can move quickly to secure their place.  Unfortunately not everyone will understand it, and not everyone will be ready to invest.  There are only so many projects ready to go at any one time.



Mick Rawlinson


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Why Peer to Peer Lending is Growing So Rapidly in the UK, and How That Effects the Property Industry?

What is Peer to Peer Lending?

Back in the days before the recession began to impact on the UK economy, money was fairly free to access on the high street at the banks and online. People and business could be confident that if they applied for a loan they would have a great chance of being accepted and that lending rates would be fair or perhaps even better, cheap. But we live in a different world now and the financial landscape has changed dramatically. Lending has been restricted to such a degree, people and business can’t access the money they need to just survive and they are turning to ‘Peer’ groups to source the funds they need; so Peer to Peer Lending is becoming more popular.

Peer to Peer lending is a simple concept in that a friend or a family member will lend you some money. It’s quite normal for friends and family to help start a business by ‘lending’ money to their relatives or friends. The process is usually informal, involves minimal paperwork and often is agreed on a ‘hand-shake’. However, the concept is evolving and becoming more formal to absorb the demand for borrowing by business. A relatively new concept is evolving called ‘Peer to Business’ lending.

What are the Benefits for the Person Lending the Money?

There are benefits to both parties involved in the transaction. If you want a home for your money you will probably take it to a bank and put it in a ‘high interest’ bearing account. Actually, what the bank then do with your money is lend it to someone else and make a profit.

Sadly, there is no such thing as a ‘high-interest’ account nowadays; high street bank rates are very low and savings are being eroded by inflation. So, as an alternative, individuals are looking further a field for opportunities to attract a better rate, and are turning to ‘Peer to Business’ lending for better returns. For example a high street bank may give you 2% or 3% interest on your funds, whereas lending to a business could be more lucrative and return to you 6% or more.

What are the Benefits to the Borrower?

Equally, on the other side of the fence, businesses now have another source of potential Lenders. No longer are the high street banks their first port of call. The downside to borrowing from the bank is often the insane amounts of paperwork associated with applying for a loan. Small businesses have enough on their plate running the business and really don’t have the time to jump through hoops going through an extended application process for the banks.

Businesses tend to like the informal approach associated with ‘Peer to Business’ lending because it is more flexible, in that there is room to negotiate on terms. For example a property development business may want to borrow monies and pay on an interest only basis over a definitive period (often long-term) and at a sensible rate, whereas an estate agent business may have just short term cashflow needs and are prepared to pay a higher rate.

What are the Risks of Peer to Business Lending?

Like all things to do with money, ‘Peer to Business’ lending carries some risk, most notably that depositing money in a current account will normally be afforded some protection by way of the Financial Services Compensation Scheme, which will cover your loss if the bank fails (usually upto £85,000). You don’t get this protection with ‘Peer to Peer or Business’ lending.

Equally, banks will generally ask the business to secure the lending they take by offering up their assets as security, or even give a personal guarantee. This sort of arrangement isn’t normal where ‘Peer to Business’ lending occurs. So if the company you lend the money to goes under or fails, you may be the last person entitled to what is left; the taxman or the banks may be entitled to their money first.

You pay your money, you take the risk. The greater the potential return, the more likely it will be at a greater risk.

Who are the Biggest Winners?

It’s fair to say that the industry to be hit hardest by the lack of debt finance has been property development. All the government initiatives of late to kick-start the housing market have been in favour of the big house-builders, leaving the small developer, in particular to go without.

Yet the opportunities available to the small developer are fantastic and there are plenty of them. Commercial Agents have an abundance of development sites on their books, but the Developers’ just don’t have the funds available to them to complete the projects.
So, they are turning to ‘Peer to Business’ lending to help fund their projects, and are prepared to pay you for your help.

As always, do your due diligence.  If you’d like to know more or just chat further about the opportunities available at the moment, please call me on 0794 152 678 2 or email mick@bastienjack.com

Best wishes,

Mick Rawlinson

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