Things are getting harder for landlords as the Bank of England continues to raise rates. It is increasingly difficult to generate a good return on investment using a traditional buy-to-let approach. Many amateur landlords are not in a position to take on more properties or are thinking about selling their existing portfolios.
But the question is how did we get here, and who benefits from the series of events created by the Bank of England? In this article, I will answer those questions and explain exactly why things are happening the way they are. In the video (above), I explain exactly how you can do what the rich are doing and benefit from the situation yourself.
1. Money printing
Following the recession of 2008 the Bank of England started a huge digital printing up of money (via quantitative easing).
They kept interest rates low, encouraging banks to create more currency via lending.
In March 2009, the Bank of England began digitally printing up money to buy bonds. This was done to stimulate the economy. This was known as quantitative easing. Pumping money into the system causes prices to rise and gives the appearance of growth. This isn’t real growth, but simply an increase in the money supply chasing the same amount of goods and services.
The Bank of England already had set interest rates extremely low. This encouraged banks to lend out money. When a bank lends out money, new currency is created. This has the same effect as central bank money printing.
This caused all asset prices to rise, including property.
2. Reducing the money supply
Inevitably, the increase in money supply caused inflation. So the Bank of England now needs to reduce the money supply.
The way central banks reduce the money supply is by increasing interest rates. More money is being paid back, and less money is lent out.
They also began selling the bonds they bought as part of quantitative easing.
Because of all the digital money printing, there was more money chasing the same amount of goods and services. This was particularly pronounced during the lockdowns, when the central bank engaged in huge amounts of digital money printing and businesses were forced to close. This led to more money chasing less goods and services.
The Bank of England then needed to go the other way. They needed to reduce the money supply to bring down prices. They therefore increased rates and began selling bonds. This means less borrowing and therefore a smaller money supply.
The stated aim here is to reduce consumer prices, but it also causes the price of assets to drop, including property. It also made having a buy-to-let property less profitable.
3. Who benefits?
Money printing: Those that have access to the new money first, before prices go up, benefit.
Reducing the money supply: Those with capital to buy assets benefit.
Those closest to the digital money printer benefitted the most, because they could use the money before the greater supply caused inflation. So the banks and the super rich benefited.
When the money supply is reduced and lending is more expensive, assets can be bought cheaply. Those with capital and who don’t need to see a return immediately benefit most. They can buy property and other assets and wait it out. So the banks and the super rich benefit again.