The topic for today will be good news for borrowers because the central bank interest rate has decided to stay low for another quarter 0.1% so excellent news for borrowers, and I think it’s a good way to welcome in the new year, give people a feeling that life isn’t so hard, even with all the inflation, prices and restrictions because of Covid-19, et cetera, et cetera, that there’s some lights at me into the tunnel.
Is that good news for borrowers on your lending rate?
Well, I’m no expert in how the Chancellor actually decides to well, the bank of England committee actually decides to the NPC monitoring committee actually decide how to actually run their affairs. But there’s a huge pressure on inflation at the moment, so I don’t think they had a choice but to actually increase it because the price inflation is actually huge. So they had to actually do something or show some sort of move upwards.
So I think that’s the main reason behind it. So I think it’s definitely good news for people that have got a lot of money and they’re looking for a better return on their money. Perfect time for Savers! But those people that have got boring money, frankly, will be not as good news. If the pressure is towards higher interest rates, then for them it’s possibly a concern as to really what they should be doing. If interest rates go up to a certain point, it could affect their property portfolio.
It could affect their property growth strategy, it could be affecting their property consolidation strategy, could be affecting really their approach to the way they’re restructuring or whether they need to refinance.
Should they be in a fixed rate or should they stay in a variable rate? So a lot of people are probably on tender hooks at the moment thinking which way is it going to go? So which way do you think first quarter of the New Year will go?
Well, I think we’ve been saying all along that the only way is up because interest rates have stayed at probably a record low. But I think that’s probably the lowest they’ve ever been, actually in the history of the UK economy.
The likelihood is they will go back up to pre Covid-19 times; maybe go back to a couple of years. So expecting at least jumps up to 2% and possibly more before this recent adjustment.
What was the rate that the central bank was applying?
Yes, it’s a smidgen. It’s actually somewhat more of an indication that the way things are going to go. But having a 0.1% raise is pretty much like not having a raise. It’s more of a more of a hint as towards where things may go, as opposed that things will change. So it gives time to get people to bunker down if they need to. Okay, great. So what do you think is one of the indicators of this interest rate hike? Is this going to be a major hike in the next quarter? Is it going to be that stays flat for the next year? What do you think is going to happen?
I think the likelihood of interest rates is going to have to go up. This is a huge amount of price inflation, the price of food, the price of construction materials, as well as various other factors. So I think it’s definitely going to go up further. I think they could go up quite quickly. So it is a concern if as being in the property market, that this could be a repeat of the possibility that could be a repeat of what happened in 2008 where interest rates went up by a couple of percent and it knocked out a lot of people in the property market and put them into negative cash flow very quickly over a period of a couple of months.
So that danger is there for anybody who’s probably too young to remember that. I think then this is probably a time to rethink, reevaluate review and then take action, client a few weeks ago I think they’ve come to us for quite a large sizeable portfolio where they want to refinance all their properties now into a fixed rate, but a long term fixed rate for the next 15 years. I think they’re quite savvy when it comes to these types of things.