When will interest rates move again?
The property world watches the money markets as closely as any sector. For investors, developers or anyone having a stake in property then having an eye on interest rate movements is essential.
With interest rates having remained at 0.5 per cent for over 3 years the stability this has given the economy has been immense. The question is increasingly being posed of ‘where will interest rates go next and when?’
A feeling across the markets that the country is finally improving its economic performance has lifted the money market swap rates substantially. Five year swaps have made a relative ‘leap’ in recent weeks from 1.06 per cent on 20th May to 1.28 per cent on 10th June and are at their highest level for a year.
A view on any rise in interest rates in the short term though has barely shifted with the money markets still pricing in a base rate of 0.75 per cent no earlier than summer 2016 – three more years at 0.5 per cent by implication.
Markets are still undecided on whether the governments ‘funding for lending’ is a success but it has driven mortgage rates down substantially, albeit with the best benefits delivering to those with big deposits but banks are still being accused of hoarding cash and shunning small and medium sized businesses.
Lending by banks and building societies fell by £300m in the first three months of this year, despite access to cheaper funds, the most recent Bank figures showed.
No one can predict where future interest rates will be but you can work out roughly when money markets forecast the Bank Rate will start to rise from the rock-bottom level of 0.5 per cent.
This is very far from a precise business – not only can financial traders make wrong predictions all the time, but swap rates are only a snapshot of their views at a given moment in time.
The BoE’s Monetary Policy Committee meets once a month and sets the bank rate. Its government-set task is to keep inflation below 2% (and above 1%), looking two years ahead.
For us the stability that low interest rates bring is a boost to pretty much all aspects of what we do. From stability there comes certainty and in turn confidence.
If you would like to discuss property investments options with Justin or the investment team, contact him on 0121 455 9455.