Future Interest Rate Rises

by Readers Question

14:14 PM, 19th December 2013
About 6 years ago

Future Interest Rate Rises

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Future Interest Rate Rises

We hear many commentators referencing “when” interest rates may rise. Just yesterday I heard late 2014 and previously first quarter 2015. Ben Bernanke has stated that US rates will stay low for some time, whatever that really means, but I’m assuming this to be for 2-3 years? Obviously the new guidance by the BOE and its link to the unemployment rate is a factor that has had many people trying to double guess when rates will rise in the UK. Of course those that have been on base rate trackers have enjoyed the last few years and yes this all may come to an end in the next year or so. I personally think that Mark Carney will not want to rush things. He seems conscious of the debt levels of many UK households and will only increase rates when he feels he has to cool things down. When they do rise I think they will be gradual, maybe 0.5% per year rising to 5% over a few years. Unless of course other economic factors crop up and he has to take evasive action quickly.

I’m just curious to know what other landlords think and if people like me spend too much time worrying about how we would cope funding our multi-million pound mortgage debt when margins decrease and rates go beyond 5 or 6%. Yes I do put money aside for rainy days, but if rates creep up to 7 or 8% that starts to hurt. Maybe if rates do go up significantly, rents will have to rise across the board to accommodate this as many landlords will be in the same boat? Future Interest Rate Rises

Any thoughts ………..

Laurie



Comments

Neil Patterson

14:21 PM, 19th December 2013
About 6 years ago

Hi Laurie,

I have written a couple of articles on this subject recently and so Mark does not accuse me of boring everyone to death lol I have the links below:

Bank of England Inflation report and what it means for Interest Rates >> http://www.property118.com/bank-of-england-inflation-report-and-what-it-means-for-interest-rates/55610/

CPI Inflation down – releasing more presure on Bank Base Rate >> http://www.property118.com/cpi-inflation-down-releasing-more-presure-on-bank-base-rate/47301/

Mark Alexander

14:44 PM, 19th December 2013
About 6 years ago

Hi Laurie

I agree with all of your predictions, particularly new lending margins decreasing when base rates rise.

For those of us who came off 5% rates nearly five years ago there is no excuse really for not having been able to build up a decent rainy day fund.

Like you though, I do sometimes worry where interest rates could end up. I was on the receiving end of a 15% base rate in 1992 and that was very nasty indeed. My hope is that interest rates will rise in relation to increases in property values. If they don't, that could trigger a further banking crisis if home-owners panic and hand their keys back to their mortgage lenders. I would also like to think that rising interest rates are also a reflection of the state of the economy and confidence as a whole which will also inspire more lending and hence the downward pressure on lenders margins.

I developed a "Landlords Calculator" which works out break even interest rates and much more, it is free to use - see >>> http://www.property118.com/calculating-rental-yields-and-returns/

One final thought is the use of equity finance as a replacement of a proportion of traditional interest bearing mortgage debt. Equity finance can massively improve the serviceability of a buy to let property - see >>> http://www.property118.com/equity-finance-for-buy-to-let-landlords/44713/
.

Colin Childs

17:32 PM, 19th December 2013
About 6 years ago

While the BOE may hold the base rate low. As the effects of the financial support pumped into the financial system eventually begin to taper out. Along with the complete withdrawl of artificial props for the mortgage market. Then it's conceivable that the "market" will begin to self correct anyway.

Banks lend long and borrow short. As tranches of funding mature. Then banks will be forced to go to the markets to renew. To attract deposits, both retail and wholesale., the rates on offer will need to be competitive.

These are not normal times. We are witnessing an experiment. That's far from over.

Over the years. I've always asked the question what if? Considering all scenarios and their impact and outcome. Keeps one objectively focussed.


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