Are we ready for the base rate to change?
I was reading a news story the other day, which made a really valid point about how we view the UK’s existing base rate…
To sum up the story, property advisors are supposedly getting concerned that as a nation we are getting too used to the base rate being low and are forgetting that it is traditionally around 5%. And I have to agree that the author of this story is right.
Think about it. For the last year, we have been treated to a 0.5% base rate which has made investing in property incredibly affordable, as lenders have been made to follow suite.
Yet if you look back over the last 10 years, a 0.5% base rate is far from normal. The reality is, in the past we were lucky to get less than 5%!
It really does get you thinking about the future. For instance, what will property investors and homeowners alike do when their tracker deals change when the base rate rises again? Are they realistically going to be able to afford to pay more on their mortgage?
For many, I am not so sure, especially if the Policy Exchanges prediction is right.
They are currently predicting that interest rates are going to have to rise to 8% in the next 2 years to help keep inflation down, and you don’t have to be a mathematician to realise that this figure will look incredibly steep to those who are only used to 3%+ interest rates.
I suppose the only thing homeowners can do is track the base rate, and when their tracker deal finishes switch to a good fixed rare deal. For property investors it will be a case of determining how interest increases affect their cash flows…
Wendy xx
