The base rate in the UK has been at a historic low for many years, but Mark Carney has suggested that the BoE could hike rates for the first time in a decade.
Last month, the Bank of England’s nine-person Monetary Policy Committee voted 7-2 in favour of keeping interest rates at their historic low of 0.25 per cent. However, despite interest rates having been so low for so long that it’s almost become the status quo, things could be changing in the foreseeable future.
In this article, London-based property specialist Experience Invest reviews what would happen to the UK’s property market if the interest rate rises.
Even as the central bank voted to maintain low interest rates, murmurings from within the Committee suggested members are starting to lean towards what would be the first base rate hike for ten years. Indeed, Gertjan Vlieghe, well known for being one of the least likely to back aggressive change within the Bank, stated he believes, in his experience, that the time has come for a rate rise.
Since the Bank of England revealed the result of its Monetary Policy Committee vote, governor Mark Carney has been quite open to review the potential for a base rate rise. Inflation currently sits at 2.9 per cent, and while the central bank wants to see this figure edge closer to the two per cent target, continuing pressures mean three per cent is more likely.
As a result, the likelihood of a rate rise has increased. Mr Carney said at the International Monetary Fund in Washington that “withdrawal of monetary stimulus” is likely in the next few months, to provide a stable way to lower inflation rates.
So, what’s likely to come in the months ahead? After Mr Carney’s statement about the future, it would appear it’s now a case of when, rather than if, interest rates rise in 2017. RBC believes it’s something we’ll see sooner rather than later, forecasting a 0.25 hike in November that would take the base rate back to its pre-Brexit level of 0.5 per cent.
The body stated it’s now more valuable to look at the messages coming out of the Bank of England rather than the current state of the economy, which has not experienced much in the way of change in recent times.
Should the interest rate go up, it’ll mean a lot of change for a lot of people, and particularly those who invest in the UK’s property sector. Anyone who has a mortgage on a buy-to-let property is likely to be hit by increased monthly payments, especially if they have let their payments fall onto a tracker product, and if we consider that many landlords own more than one property, the cumulative impact of an interest rate rise could be damaging to their property portfolios.
For those who do have buy-to-let mortgages in place at the moment, the advice is simple; review and fix your rates as soon as you can. From the point we’re at economically, interest rates can only ever realistically rise, but with the prospects of that happening now seeming a lot more likely, it’s time for investors to act rather than waiting to see.
Fixing your rates for as long as possible will allow you not only the chance to keep repayments low, but also the time to review the market and better prepare for higher rates further down the line.