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Insight & Opinion

BoE holds interest rates steady and boosts UK growth forecast

Author: Gemma

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Recent years have raised some challenges for the UK property market, and the buy-to-let sector in particular, most notably the uncertainty caused by Brexit and the increased stamp duty on second homes introduced in April 2016.

Investors have also had to contend with the gradual phasing out of buy-to-let mortgage interest tax relief, which is being replaced by a 20 per cent flat-rate tax credit. Despite these considerations, there are reasons to be positive about UK property and the mortgage market at the moment, one of which is the favourable interest rate environment.

Rates stay slow

The Bank of England made its latest monetary policy announcement at midday on Wednesday May 2nd, confirming, as expected, that the base rate of interest would stay the same at 0.75 per cent. That means mortgage borrowers on tracker or variable-rate deals don’t have to worry about their payments going up in the short term.

Furthermore, the central bank is currently anticipating just one increase in interest rates by 2021.

The base rate has now been at the historically low level of 0.75 per cent since August 2018, having previously been set at either 0.5 per cent or 0.25 per cent since 2009.

Ongoing uncertainty around Brexit and its potential impact is one of the key reasons why the Bank of England doesn’t want to raise interest rates. The current situation is certainly beneficial for borrowers, with experts saying now is an affordable time to take out a mortgage.

David Hollingworth of L&C Mortgages told BBC News: “Right now, you’ve got lenders that want your business and rates are exceptionally low.”

A brighter economic outlook

Another key point in the Bank of England’s latest update was its more positive UK growth forecast, which has been raised from February’s projection of 1.2 per cent to 1.5 per cent.

The central bank stressed that future performance will depend on the outcome of Brexit negotiations and Britain’s future trading relationship with the EU, but also highlighted the steady strengthening of the global economy.

Minutes from its latest policy meeting said global growth had “shown signs of stabilisation, and had been a little better than expected”.

Questions about Brexit will continue to cause a degree of uncertainty in the near future, but for investors looking for opportunities in the UK, the favourable interest rate environment and positive trends in sectors such as student accommodation suggest there are still major gains to be made in the property market.

Access the Understanding UK Property Investment in a Post-Brexit World Guide…

What does this mean for the property industry?

For property investors, today’s announcement provides a silver lining for property investors who have experienced a wave of tax changes over the last few years.

Commenting on the Bank of England’s announcement, Jerald Soils of Experience Invest said:

“It’s not surprising the Bank of England has decided to keep interest rates on hold. Since the global financial crisis, the BoE has taken a very cautious approach to the interest rates, and Brexit uncertainty has made things even more complicated. However, it is positive to note that the BoE is also more optimistic about the future growth prospects of the UK economy, demonstrating that Brexit is not undermining national productivity in the long-term.

“The low interest rate is positive news for prospective homebuyers looking to get on the market, not to mention landlords and property investors expanding their real estate portfolio. After all, a wave of recent tax changes have increased the costs faced by landlords when building and managing a buy-to-let portfolio. Of course, there are still issues to be addressed, such as home affordability. While low interest rates make mortgages more accessible to people, rising house prices and issues of affordability mean that even now, people are struggling to get on the property ladder and the market is slowing. That’s why more action needs to be taken to increase the housing supply, and new-build developments are a core part of this solution.”

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