Here's my prediction, until wages are growing again at least 3%, UK interest rates are under no pressure to rise
So anyone that says fix your mortgage now is probably a broker aiming to make money.
Sure there are lots of experts predicting rates will rise 2014 because they wouldn't dare raise them next year before the May election (BBC Report – UK Interest Rates) but there just isn't a case for raising them at all yet.
Inflation is still very low and some signals from Europe are that its a basketcase (not signals, actuals) and this could affect UK growth as well. So this just doesn't support rates rising.
But my central case for this is that wages are not increasing and by all measures it would appear that things could be slowing down. House prices which were growing massively in London have slowed naturally as the slack (in supply and demand) has been taken up. So I expect a more moderate growth through this year and next with the usual scary story coming out that prices are unaffordable.
International buyers have been largely subdued due to the local economies slowing (in some cases through cooling measures put in place by governments) and in some cases because the cheap pound has begun to climb back.
So for me the interest rates are on hold until the economy is back into definite and sustainable growth and that means that wages are growing. Its all part of the normal and natural cycle, I call it my Property and Economic Trend Cycle.
The real story I think is not that UK interest rates will rise but by how much. Traditionally you would expect an average over time of around 5%, it would go higher and lower but overall you would be paying this much. My feeling is that with the sheer weight of regulation and anti-investment measures to stop the next bubble! The UK Interest rates will settle at about 3%-4% going forward, so we are likely to be in a low interest rate environment for the foreseeable future.
So what does a 3%-4% average interest rate mean?
It means that house price growth will not be as great as it was. It means that less young people will be able to get on the ladder without help from parents, it means that capital growth will be extended out. Most of all it means that if you wanted any asset class to provide for retirement you are going to need longer and to divert more funds into whatever vehicle. This will affect every asset class.
We never learn from the past, we simply wait long enough to forget it
Of course, I could have written this article back in the late 1980's, early 1990's. Saying the same thing and invariably the governments forgot what they did and loosened things bit by bit which lead to the next bubble.
The next bubble is coming…
Make no mistake, irrespective of what interest rates in the UK do there will be another housing bubble and another recession. It won't be a for number of years perhaps a decade or two, but it will happen. The reason is simple – human nature. If we track back to just before the 2008 recession you will find many commentators believing they have solved what makes a depression like the 1930s. Gordon Brown and Ben Bernanke all gave heroic speeches about overcoming the things that lead to depressions. They were wrong, totally wrong. Human nature overcomes all human ego…
So the best thing to do is make sure you are prepared for interest rate increases. Now, sit down with a professional like one of our Portfolio Managers and map out the effect of UK Interest rates rises and then sit back and enjoy the low rates while they last.
Call the team on +44 (0)207 923 6100 to arrange a phone or sit down meeting with one of our Portfolio Managers.
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