One of the things that makes property investors anxious is the interest rates. Yesterday Bank of England left interest rates unchanged for the 15th month in a row at 0.5%.
Every investor and home owner has benefitted from lower mortgage payments. But how long this party can last?
Some economists and institutions like OECD have been warning Britain of increasing inflation and recommend rates to rise to at least 3.5% by next year. However others are urging caution.
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Why Rates Should Rise?
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1. Billions of pounds that entered the economy as a result of ‘quantitative easing’ will raise prices of goods and services, which will raise inflation. To nip this problem in the bud, rates should be raised.
2. Govt may try to ‘create’ inflation to erode the government debt, most of which was created by bailing out our banks in the first place.
3. Weaker sterling is ‘importing’ inflation as it is more expensive to buy foreign goods like oil etc.
However others beg to disagree, especially the Bank of England.
——
Will The Rates Rise?
——
(1) Rates will rise only if Bank of England’s monetary committee is convinced that Britain faces real danger of inflation. And in their latest report, BoE thinks that in the long term, inflation will stay around 2%.
(2) Swap markets in the City also agree. As tiny changes can make or loose millions, they keep a very close eye on events and sentiments that affect interest rates around the globe.
The markets expect the BoE base rate to rise eventually. However as the recovery will be bumpy and gradual, and since the fear of double-dip recession can not be discounted still, they do not expect the rates to be higher than 1.25 to 1.5% by the end of 2011.
(3) Here is what the swap markets currently think the rates will be:
1.18% in one year from now
1.50% in two years
2.55% in five years
As an investor, I just hope that swap markets are right and hawks at OECD are proven wrong.
One of the things that makes property investors anxious is the interest rates. Yesterday Bank of England left interest rates unchanged for the 15th month in a row at 0.5%.
Every investor and home owner has benefitted from lower mortgage payments. But how long this party can last?
Some economists and institutions like OECD have been warning Britain of increasing inflation and recommend rates to rise to at least 3.5% by next year. However others are urging caution.
Why Rates Should Rise?
- Billions of pounds that entered the economy as a result of ‘quantitative easing’ will raise prices of goods and services, which will raise inflation. To nip this problem in the bud, rates should be raised.
- Govt may try to ‘create’ inflation to erode the government debt, most of which was created by bailing out our banks in the first place.
- Weaker sterling is ‘importing’ inflation as it is more expensive to buy foreign goods like oil etc.
However others beg to disagree, especially the Bank of England.
Will The Rates Rise?
- Rates will rise only if Bank of England’s monetary committee is convinced that Britain faces real danger of inflation. And in their latest report, BoE thinks that in the long term, inflation will stay around 2%.
- Swap markets in the City also agree. As tiny changes can make or loose millions, they keep a very close eye on events and sentiments that affect interest rates around the globe.
- The markets expect the BoE base rate to rise eventually. However as the recovery will be bumpy and gradual, and since the fear of double-dip recession can not be discounted still, they do not expect the rates to be higher than 1.25 to 1.5% by the end of 2011.
- Here is what the swap markets currently think the rates will be:
- 1.18% in one year from now
- 1.50% in two years
- 2.55% in five years
Most investors will hope that swap markets are right and hawks at OECD are proven wrong.
