UK base rates remain at record lows despite the fact that we are approaching a decade since the economic downturn which prompted worldwide interest rates to fall. At this moment in time, despite the fact that the Bank of England had indicated a potential rise in months gone by, there is little likelihood of UK interest rates rising. We have a slowing property market, mixed economic signals and the shadow of Brexit hangs heavy over the UK.
Making use of low interest rates
When you bear in mind inflation has increased over the last few months and the gap between wage inflation is growing, these are not encouraging signs for the UK property market. That said, record low interest rates are being reflected in the mortgage market which is becoming more competitive. As a consequence, homebuyers are now looking to remortgage and make full use of low interest rates as a means of extending their financial reach.
Governments around the world are watching mortgage rates very closely and the impact which low interest rates are having on property prices. The US authorities have promised further increases in base rates during 2017 as a means of reducing speculative investment in both the stock market and real estate. The UK is nowhere near this situation but this is a pattern which could be replicated in the years ahead.
Mortgage regulations
In light of the 2008 economic downturn the UK authorities introduced an array of mortgage regulations which they believe will help better police the markets. There have been signs that some mortgage companies have been looking to challenges these regulations as competition grows. At the moment the UK market is in limbo because of the ongoing Brexit negotiations although housing stock for sale has fallen further than buyer interest. So we are in a strange situation where property prices continue to rise, albeit slower than recent times, despite the difficult economic backdrop.
It will be interesting to see whether the UK government clamps down on potential infringements of mortgage regulations or whether indeed the noose is loosened and the markets given more leeway. The fact is that due to the number of homeowners in the UK the government will need to support the market in some shape or form. You only need to look at the party manifestoes to see the various promises to first-time buyers and those who have already bought their properties.
No rush
Even though UK base rates and mortgage rates are at historic lows there is little likelihood of a significant increase in rates in the short to medium term. The UK economy has been one of the strongest in the world in recent times, as has the property market, but there is so much uncertainty at the moment that the Bank of England would be foolish to rock the boat. So, low mortgage rates will continue to support and fund the UK property market for the foreseeable future, there is a likelihood that homeowners will remortgage at lower interest rates but those concerned about a short to medium term increase in UK base rates have little to worry about.