Preparing for a rise in interest rates

Posted on April 13th 2017 / Will Spangler

An issue for new homeowners that has been dormant for eight years may again be on the rise. Interest rates are a large contributing factor for home purchases and there is recent speculation of the rates rising. We at Jeremy Jacob will explain how interest rates affect home purchasing, letting, and our future rate prediction.



How interest rates affect home purchasing power

Rates have been historically low around 0.25-0.5% since 2009. Investors have been taking advantage of low rates to purchase property with leverage. This is because interest rates set the borrowing rate, making interest payments historically low. However, many homeowners forget that this is an extreme and rare circumstance. Historical average of rates are approximately 5%, which greatly increases the cost of borrowing money.

 

Interest rates for letting 

When rates do rise, this can make it difficult for a segment of the population to purchase property because the cost of borrowing will increase. To accommodate, letting will become increasingly popular in the future because it avoids the high financing costs. It is therefore a more affordable short-term option for residents.


Expectation for Rate Rise
 

The Bank of England sets rates to combat inflation and ensure economic growth. A weak global economy in 2009 prompted a sharp decline in rates to near 0%. A foreseeable future of economic stability is necessary to raise rates; else a slip back into recession is possible.

The UK will be in negotiations with the EU over the next two years regarding trade and policy regarding ‘Brexit’. The negotiations will be affecting which companies choose to operate in the UK and the trade potential of the UK with other countries. It would be a bold move by the Bank of England to raise rates substantially within the next couple years for threat of falling back into a recession. More economic certainty is needed in the future.     

On the other hand, the USA has been taking slow steps at raising their interest rates in the past year and will continue to do so in the coming years. The UK traditionally follows in the rate changes of the USA. Therefore, the UK will have potential to raise their rates as well. We at Jeremy Jacob predict that interest rates will begin to slowly rise in 2018.


Further Action
 

Overall, the uncertainty ahead still reasons that interest rates will not substantially rise any time soon. This makes it an optimal time to continue investing in property because rates are low. Invest wisely now and then reap the rewards in years to come by renting out property when the rates rise. To be secure in your investment, we at Jeremy Jacob would advise our buy-to-let landlords to calculate and factor in a buffer for interest rates rising of 5-8%.

 

Category: 
Tags: interest rates property purchase economics


Posted by Will Spangler
Categories
All Categories
News
Tag Cloud
All 18 year property cycle Fred Harrison buy-to-let investing property market renting Jeremy Jacob letting specialist tenant landlord scandal SAFEagent Tenant Landlord CMP scheme Member Protect Money property market renting Jeremy Jacob letting specialist election Theresa May real estate investment London housing prices politics interest rates property purchase economics Brexit property market investment international tenant Museum Design Kensington High Street AirBNB Landlord Tenant Rent Cost Millenial upgrading digital young people buying EU European Union Brexit Soft Hard Jeremy Jacob Lettings Rental Market London landlord real estate property rental tenants optimism BREXIT Referendum General Election prices rental market foreign investment Scottish Referendum global crisis Closing opening sales art craft relationships listen want needs willing believe customer client win/win Christmas Rent Commit Compromise Rent freeze rents increasing lack of supply Smoke alarm Carbon Monoxide alarm 1st October Adhesive stick-on pads crime Maps Pinned location area streets properties Jay White Will Smith discretion sensitivity value Rightmove Zoopla Agents Mutual On The Market International Expatriate Mould Grout Clean Air flow Heating Temperature Deposits Accurate rent Asking Price. Investment market Interest rates mortgage competition City Mapper Bus journey Train journey Jeremy Jacob Letting Specialists Labour Mansion Tax government Stamp Duty Buy-To-Let Rollerskating Rollerblading Skateboarding Code of Conduct Licensed Skilled Expert ARLA Licensed member Money gurantee. South Kensington Chelsea The Dana Centre Saatchi Gallery Victoria and Albert Museum The Natural History Museum Prime Central London Property Wire Economy Boost Rental market Supply and Demand Buy To Let Renting Housing Market House prices Building Economy Mark Carney Investors Property Boom British Europe House Prices Phoenix Towers