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Insight & Opinion

BoE keeps interest rates low as housing market resurgence continues

Author: Gemma





The Bank of England has announced that interest rates will be kept at a record low of 0.1% as the UK economy continues its recovery from the coronavirus pandemic.

The Bank of England (BoE) has provided some good news for property investors looking to keep their borrowing costs to a minimum: interest rates will be kept at a record low of 0.1% to support the economy’s ongoing recovery from the coronavirus pandemic.

Combined with increasing signs that the housing market is returning to normal activity, the continuing low interest rates could make now the ideal time for investors to secure a stake in UK property.

Record low rates

The BoE’s Monetary Policy Committee voted unanimously to keep interest rates at just 0.1% in August, in an effort to stimulate growth and business activity by reducing the cost of borrowing and keeping credit flowing into the economy.

Interest rates have witnessed a fair amount of turbulence in the last four years. The BoE kept rates steady at 0.5% between March 2009, when the country was still in the midst of the global financial crisis, and August 2016, in the wake of the Brexit vote.

In August 2016, however, the central bank’s cost of borrowing was reduced to 0.25% and stayed at that level for more than a year, before rising by 0.25 percentage points in November 2017.

Another increase took the base rate to 0.75% in August 2018, before the BoE knocked it back down to 0.25% in March 2020, as concern over the coronavirus outbreak was beginning to build. The central bank then took the extraordinary step of making an unscheduled change in interest rates, cutting them to the current record low of 0.1% on March 19th, just a few days before the UK went into lockdown.

‘Rapid recovery’

Announcing its decision to keep interest rates at the same level in August, the BoE also revealed that the economic shock created by the pandemic is likely to be less severe than initially expected.

The central bank said a faster easing of lockdown measures and a stronger pick-up in consumer activity than previously forecast had helped the economy stage a more substantial resurgence in May.

As far as the property market is concerned, there have been several signs that activity is making a return to pre-crisis levels, driven by the release of demand that built up while the country was in lockdown.

Helal Miah, investment research analyst at The Share Centre, pointed out that “the housing market appears to have returned to normal levels of activity”.

Nationwide’s house price report for July showed that annual price growth recovered to 1.5% in the month – a positive sign for investors eyeing capital growth. The month-on-month increase was 1.7%, which reversed a fall recorded in June.

Robert Gardner, the building society’s chief economist, said: “The bounce back in prices reflects the unexpectedly rapid recovery in housing market activity since the easing of lockdown restrictions. The rebound in activity reflects a number of factors. Pent-up demand is coming through, where decisions taken to move before lockdown are progressing.”

There have also been encouraging signals in the buy-to-let sector, including a recent report from Paragon Bank showing that four out of ten mortgage brokers expect an increase in buy-to-let business in the coming year.

Richard Rowntree, the bank’s managing director of mortgages, said there has been a “solid rebound” in this segment since the property market reopened in mid-May.

“Landlords have been unlocking capital to invest and grow their portfolios further,” he added.

“We expect to see increased demand for rented property underpinning growth in the coming months as people delay house purchase or cannot obtain a mortgage with the removal of higher loan-to-value products in the residential market.”

For investors looking for opportunities in UK property, all the signs suggest now is a good time to make a move.

Contact Experience Invest to discuss our current property investment options and prospects.

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