Friday, August 23, 2013

Property financing and interest rates

Financing your property 

Bank of England's new Governor Mark Carney revealed the bank's first ever pre-commitment on interest rates. He is suggesting that the interest rates will be at their historically low rate of 0.5% until I employments reaches below 7%. Currently it's above this level i.e 7.8% and is not expected to drop in near future.

This historic step gives landlords greater certainty to move forward with their investment decisions.  The answer to the question as to whether to go for a fixed rate mortgage or a variable one may be clearer than ever before.  Cleverly, Carney has not tied his hand to fixing rates for a set period.  Experts are currently predicting that the unemployment rate will remain above 7% until 2016.

Government strategy clear

The strategy of the coalition government has been clear from the outset. Encourage inflation and lending so to avoid, deflation and thereby inflate away the huge debt.  Inflation is a debtors best friend as it reduces the size of the debt providing other factors remain the same.  This is all good news for many landlords who are heavily geared and for whom their biggest expense remains their buy to let mortgage payments.  Although rents have failed to keep up with inflation but fortunately for landlords they have outstripped debt repayments which have stayed the same or even reduced giving an ever increasing margin and rental profit.

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