Don't lock down your portfolio
There is a huge amount of talk about inflation and the fact that interest rates need to rise.
I have no problems with this. As a property investor this is an indication that property prices will rise and our relative debt against our existing assets will decrease. This does however pose an interesting question.
If interest rates are going to rise, shouldn't you lock in the rates now?
The truth is that no-one knows with certainty what the market is going to do but the fact is that inflation is on the way up and this will eventually result in increasing interest rates. Depending on which experts you believe they are saying July 2010 through to the end of 2011.
There are a few things to consider before you build a property investment portfolio and lock into a new mortgage right now.
More recovery is required – I believe that we need to get a little further down the road to recovery, we need to hear the Coalition's policies in more detail and we need to see if inflation does in fact begin to drop.
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More competition is required – Only after we have more recovery will we see more competition come back to the market. This is essential if investors are to get a better deal.
If you lock up your rate you will lose flexibility – This is perhaps the most important of the lot, if you lock in a Variable rate of say 4% above the Base Rate (which is now 0.5%) and Base Rate goes up to 3.5% which some experts are predicting would be worse case scenario by the end of 2011. This would mean that you were paying 7.5%. So if you remortgaged your entire portfolio now to this type of mortgage you may regret it come the end of 2011.
The other thing to consider is that is if you remortgage all of your portfolio now, then restrictive Early Repayment Charges take away any flexibility you had to draw on equity that you may have in the next year or two.
Property prices may drop – Given the sheer depth of deficit and debt and the changes that must be made, the talk of capital gains tax increases, and depending on how the government responds to this could mean that prices remain subdued for some time. This will obviously have a huge affect on your remortgaging and cash flow requirements.
It's one or the other – The thing to keep in mind is that if things take off, property prices will increase giving you greater equity but as interest rates rise your cash flow will be affected. If things remain slow then prices will stay slow and rates will stay lower so your cash flow is saved. So it's one or the other but cash flow and capital are still the two most important dynamics in property investing.
It's a minefield wherever you look in the property market right now and if you're confused, don't worry, the team are here to help you and are trained to take you through some possible scenarios so you can face the future with certainty and make the appropriate decision.
Just call the team on +44 (0)207 923 6100.
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