Following the meeting of the Monetary Policy Committee (MPC), Sterling fell sharply, indicating that investors and the city had been spooked by the potential for quick interest rate rises; however, the bank refuted this and asserted there are no plans for anything other than a gradual rise over the coming years.
In a statement, the bank said “The MPC now judges it appropriate to tighten modestly the stance of monetary policy in order to return inflation sustainably to target. All members agree that any future increases in Bank Rate will be at a gradual pace and to a limited extent.”
Further reacting to inflation figures showing a rate of roughly 3%, the bank went on to note the impact Brexit was having on the economy. It said:
“The overshoot of inflation throughout the forecast predominantly reflects the effects on import prices of the referendum-related fall in sterling. Uncertainties associated with Brexit are weighing on domestic activity, which has slowed even as global growth has risen significantly. And Brexit-related constraints on investment and labour supply appear to be reinforcing the marked slowdown that has been increasingly evident in recent years in the rate at which the economy can grow without generating inflationary pressures.”
With the potential shock to the market in mind, the bank also went to reassure business and market leaders that rates would not rise faster than expected, despite warning that it may be a possibility earlier in the year. They said:
“If the economy were to follow a path broadly consistent with the August Inflation Report central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast than the path implied by the yield curve underlying the August Report.”
Jeremy Cook, Chief Economist at WorldFirst told The Guardian: “The all-important guidance for the future is that this may be the only rate rise for a while. For the Bank to drop the line that rates may need to rise more than the market expects’ is not a supportive move for future rate rise expectations.”
So what are the implications for investors and landlords? Simply put, if you’re in a mortgage arrangement with the bank or any other form of lending you may well expect your cost of borrowing increase over the coming months, unless you’re in a fixed-term agreement.
It does, however, also raise the potential for savings rates to increase also, meaning that any capital currently invested in other places may well earn a better income.
Further to this, though, the long term implications for BTL landlords is that mortgage rates will increase and the price of taking a mortgage will follow suit, meaning that demand for rental properties will both increase and settle over a longer term.
It’s good news for investors overall, showing confidence in the economy from the bank, showing that they’re listening and responding to challenges and keeping the UK economy competitive for domestic and foreign investors, especially property investors.
With a decrease in demand for property purchases comes in increase in demand for rental properties, and with an increase in demand come higher rental returns, yields and capital appreciation.
All in all, investors and landlords can see this move as a positive one.