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Torcana Blog
Quantitative easing is not the same as printing more money, although this is also an option open to central banks such as the US Federal Reserve and the Bank of England.
Quantitative easing on a large scale occurs when a central bank issues huge amounts of short term bonds, which in turn enables them to buy back their own long term bonds.
By doing this, bond yields and therefore long term interest rates will decrease.
Ok, so what will that do?
Well, that would drive mortgage interest rates down and potentially kick start the property market.
The downside for US importers is that this will also weaken the dollar – which of course, is an upside for investors seeking to purchase American property using GBP and EURO.
Issuing and then buying back your own bonds – sounds ridiculous doesn’t it?
I guess it does a little, but if you think about it, it is actually very similar to a regular person increasing their bank overdraft and using the extra money to pay back more of their mortgage.
It made sense for the Bank of England and Fed Reserve to do this, because interest rates were close to zero and mortgage rates for those trying to invest in property or get on the property ladder were often as high as 6-7% which was causing huge friction in the stock markets.
As noted above, one of the side effects of quantitative easing is that it drives down the interest rates on their 10 year bonds, which are often linked to mortgage rates.
Decreasing long term mortgage rates effectively puts more cash in peoples pockets which will hopefully encourage them to spend more…
Please feel free to leave any comments.
Kind Regards
Colin Murphy
8 Responses to “Quantitative Easing - How it affects property investors”
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Where are you getting your facts? Great site.
Hi and thank you for a enlightening posting. I am still thinking over what you wrote.
The site would definitely convince more investors because of the great information it provides.
The only thing that is growing is the deficit and the number of government workers. Obviously there are people in the government that are necessary for the proper functioning of society, however, I class the vast majority of them as “overhead”.
It is trending towards Japan-like status, but relatively slowly, to the point where we won’t get to where Japan is today for decades. And because Japan isn’t sitting still on this front, by the time we look like the Japan of today, the contemporary Japan will look a lot worse.
You get the feeling that the investment bankers have paid shills to warn about a bond market bubble every month or so in order to get some IPO’s not worth their weight out the door. If you actually buy the bond in the secondary market, the worst you can do is get the yield you bought it at to maturity. But selling them back with 1-2 years left to maturity has been a winning strategy recently. How is this a bubble?