Friday 15 August 2014

Have You Future Proofed Your Investments Against Rises in Interest Rates?


Update:  We've moved our blog to www.folkestone-estateagent.co.uk


After five years of enjoying the rewards of low interest rates and cheap properties it's time to take stock and future proof our investments.
 
The general view in the city is that The Bank of England will have raised interest rates by January 2015 or earlier, although no one seems to be expecting a dramatic hike in interest rates, rather a steady, gradual increase towards a specific goal.

So what does that mean?  Well no-one except Mark Carney knows for sure but we can speculate a little based on what the Bank of England has been telling us so far.

A year ago the BoE said that they would not raise the rates until unemployment dropped below 7% (currently 6.4% at the time of writing)

Only a few days ago at a BoE press conference Mark Carney said, "sustained economic momentum is looking more assured" and that future interest rate rises were likely to be "gradual and limited increase".
 
Furthermore, Carney said that the "normal interest rates of tomorrow are likely to be lower than those of yesteryear". Replying to a question from Sky's Ed Conway, Carney said market expectations of future rate rises were consistent with a change that would be gradual and limited.

What does "Lower Than Yesteryear" Mean?

One would expect that he's referring to rates experienced only in the last fifteen years where the pre-market collapse figure stood at just shy of 6%.

This is further supported by the BoE's forecasts issued on the 1st August:

0.83% in one year
1.35% in two years
2.18% in five years

Although we've also heard 2.5% quoted as a projected rate in five year's time.

Could these predictions be wrong?  Of course, there are many schools of thought, but Bank of England predictions are as close as you're going to get to a crystal ball.


Planning for Interest Rate Rises.

Take a look at the margin you're currently making on your investment properties and make a financial projection for each one to see what the inpact of rising interest rates would be on your return on investment.  Are you charging enough rent for this property?  Has your agent been reviewing the rent annually in line with the terms in your tenancy agreement?  Have you redecorated the property during voids to maximise the rent you receive and the quality of tenants?  If you're seriously up against it now with the mortgage payments then perhaps its time to think about selling?

Sit down with your agent and review your options to safeguard your investment now, and if you're not sure that your agent has the time or accumen to help you with this, then give us a call to discuss your options.  Afer all, sometimes a fresh pair of eyes sees opportunities that were there all along.