Mark Carney has certainly blotted his copy book with real estate investors with a survey earlier this week suggesting that analysts believe UK base rates will not rise until the final quarter of 2016. The Canadian economist came with an exemplary past record but unfortunately he is having trouble forecasting when UK base rates will eventually rise.
This obviously has a major impact upon property finance costs going forward and yet again we may see many investors looking to lock down historically low interest rates before they eventually begin to rise.
Does anybody know what is happening?
When the governor of the Bank of England is unable to forecast with any real confidence when UK base rate will begin to rise, having suggested they would do so on a number of occasions, what hope is there for the rest of us? Historically the Bank of England has given firm direction with regards to monetary policy and base rates on which many investors have based their short, medium and long term investment decisions.
It is inevitable that UK base rates will eventually rise, with the recent US increase setting a precedent, but when, nobody really knows. As we have mentioned on numerous occasions, economic challenges in China are starting to impact the worldwide economy and the glut of oil is also hurting economic growth. These two issues are already having an impact upon worldwide unemployment figures with some of the larger oil companies recently announcing significantly reduced profits and a “trimming” of the workforce.
How does this affect the property market?
Over the last 12 months or so we have seen sporadic interest in locking down long-term finance rates as it seemed UK base rates were heading higher. It now seems as if it could be at least another nine months before base rates do eventually rise although these expectations could be pushed further back if the worldwide economy struggles. The lower finance costs the better for the UK property market although we could see the emergence of new hotspots pushing prices to perhaps unsustainable levels in the medium term.
Interestingly, volatility in the stock market is also pushing new investors towards the property sector which is now seen as a safe haven. Indeed, over the last few weeks we have published articles highlighting the fact that as one group of foreign investors reduces activity in the UK property market, there seems to be another ready to take up the slack. This is a situation which has been prevalent across the London property market which is one of the favourites amongst international investors at this moment in time.
Mark Carney came to the UK to be the new governor of the Bank of England with an exemplary record and a reputation to match. In all fairness he is trying to steer the UK economy through waters never experienced by anyone alive today. There have been various attempts to direct investors and financial markets and alert them to an eventual increase in UK base rates but so far the timing has been off.
It may be a little unfair to suggest that investors are beginning to question Mark Carney but there is no doubt mistakes have been made over the last couple of years. Perhaps we will see the best of the governor of the Bank of England once the worldwide economy returns to “normal” – whenever this may be.