Are interest rates about to rise?

27th October 2021

By Will Leyland

If you’re keeping up with the news it’s likely you’ll have seen plenty of stories about the rising cost of living, rising wages and rising inflation.

Regardless of your personal views of Brexit, what we can be certain of is that it’s caused a labour shortage and a supply chain issue which means that in order to fill vacancies, employers are willing to pay much higher wages than they may have done a few years ago.

On the face of it, that’s a good thing. With people earning more they’re able to spend more in the economy and fuel growth, however, it also creates inflationary pressure on the price of goods as businesses cover the costs of better paid staff.

Added to that is the fact that a shortage of HGV drivers has caused supply chain issues with things such as fresh food, petrol and other goods. It’s not a chronic shortage but certainly enough to cause prices to rise as it costs more to import goods and services.

These things combined have caused inflation to grow somewhere above 3% for the first time in quite a while. The Bank of England estimates put inflation at 3.1% whilst their goal is to keep inflation at 2%, so it’s causing a conundrum.

Interest rate rises?

As written by Luciano Rispoli in The Conversation, this could well mean that the Bank of England sees fit to increase interest rates to curb inflation.

Rispoli writes, “The reason that an increase in interest rates now seems likely is that the inflation we are seeing is unlikely to be as a result of economic growth. Among the facts, the Office for National Statistics calculated that in September 2021 the largest contribution to the inflation rate came from rising costs in transport; housing and household services (the cost of renting or buying, furnishing and maintaining a home); restaurants and hotels; and recreation and culture.”

Whether the bank sees these increases as temporary or not will likely dictate whether they decide to move on interest rates, but why should we care?

Mortgage rate increases

Ultimately, your mortgage company set their interest rates from the Bank of England base rate, which currently sits around 0.10%, the lowest in history.

Historically low mortgage rates have meant a very healthy residential market, but if rates rise, what could that mean for investors?

If you own your property outright, then not much. If you’re in fixed deals then, again, you won’t feel the effects too much. If you’re on a variable rate or coming to the end of a current fixed deal now may well be the time to renegotiate your existing deal.

All things aside, however, what it also means is that many residential buyers are put off from the market whilst they assess the impact to their incomes, meaning that there is more property available for investors, and certainly those looking to purchase buy-to-rent properties.

All in all, now seems a sensible time to look to invest further in the market primarily before rate rises, but also keep your eye out for deals if interest rates to rise.

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Are interest rates about to rise?

27 October 2021

If you’re keeping up with the news it’s likely you’ll have seen plenty of stories about the rising cost of living, rising wages and rising inflation.

Regardless of your personal views of Brexit, what we can be certain of is that it’s caused a labour shortage and a supply chain issue which means that in order to fill vacancies, employers are willing to pay much higher wages than they may have done a few years ago.

On the face of it, that’s a good thing. With people earning more they’re able to spend more in the economy and fuel growth, however, it also creates inflationary pressure on the price of goods as businesses cover the costs of better paid staff.

Added to that is the fact that a shortage of HGV drivers has caused supply chain issues with things such as fresh food, petrol and other goods. It’s not a chronic shortage but certainly enough to cause prices to rise as it costs more to import goods and services.

These things combined have caused inflation to grow somewhere above 3% for the first time in quite a while. The Bank of England estimates put inflation at 3.1% whilst their goal is to keep inflation at 2%, so it’s causing a conundrum.

Interest rate rises?

As written by Luciano Rispoli in The Conversation, this could well mean that the Bank of England sees fit to increase interest rates to curb inflation.

Rispoli writes, “The reason that an increase in interest rates now seems likely is that the inflation we are seeing is unlikely to be as a result of economic growth. Among the facts, the Office for National Statistics calculated that in September 2021 the largest contribution to the inflation rate came from rising costs in transport; housing and household services (the cost of renting or buying, furnishing and maintaining a home); restaurants and hotels; and recreation and culture.”

Whether the bank sees these increases as temporary or not will likely dictate whether they decide to move on interest rates, but why should we care?

Mortgage rate increases

Ultimately, your mortgage company set their interest rates from the Bank of England base rate, which currently sits around 0.10%, the lowest in history.

Historically low mortgage rates have meant a very healthy residential market, but if rates rise, what could that mean for investors?

If you own your property outright, then not much. If you’re in fixed deals then, again, you won’t feel the effects too much. If you’re on a variable rate or coming to the end of a current fixed deal now may well be the time to renegotiate your existing deal.

All things aside, however, what it also means is that many residential buyers are put off from the market whilst they assess the impact to their incomes, meaning that there is more property available for investors, and certainly those looking to purchase buy-to-rent properties.

All in all, now seems a sensible time to look to invest further in the market primarily before rate rises, but also keep your eye out for deals if interest rates to rise.

Will Leyland

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