What Next For UK Interest Rates?

Home owners and potential buyers have been peering into the tea leaves for months, trying to second-guess movements in interest rates. Will we have another six months of historically low rates, or a year, or two years?

A new survey from The Worldwide Property Group has found that half of its respondents think rates will rise in the next 12 months, while half think they will stay as they are. But the trend is actually towards rates remaining low – in April 2010 the same survey found that 79 per cent of respondents expected a rate rise.

So what are the factors that could prompt a rise?

• Inflation rising sharply. The bank of England doesn’t like to see inflation above something like 3.5 per cent, so if it heads towards 5 per cent or more, interest rates are likely to rise.

When people have less money to spend on consumables, because they are spending more on their mortgages, there is downward pressure on prices, helping to bring inflation down.

• The economy takes off. Interest rates can be used to curb excesses of boom and bust (higher at a time of boom and lower in a downturn). Since there are few signs of a booming economy, this factor is unlikely to kick in.

• To spur more bank lending. Banks are currently reluctant to lend to home buyers for various reasons, but very low interest rates are one of them. Their margins when lending at 3 or 4 per cent are so tiny, they feel they might as well not bother. It’s a bit like a property developer sitting on some land and waiting for the value to rise before building.

So even though it would be a bit painful for some borrowers, higher rates would encourage more lending, which many prospective buyers would welcome.


Original content can be found at The UK Interest Rates Advisory

This site is written and contributed to by property professionals from inside the UK House Building Industry.
That's right, we're developers - hated by all for our unwavering pursuit of profit and demonic need to concrete over the UK's greenbelt.
You may well wonder why we (as opposed to estate agents) are best equipped to advise you on the subject of selling property?
Surely our expertise lies in knowing how to buy land, put together development proposals, navigate the planning process and build identikit housing estates?
This is all true but it misses the one key point that our core goal (like yours) is to sell property for the highest possible price!
Just like you we also have to deal with flaky buyers, shoddy estate agents, slow solicitors and inept mortgage brokers.
The difference is, we do it on a daily basis and as such have become masters of managing the process.

Ashton House, Cornwall Avenue, London, N3 1LF

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