Will the base rate increase over the next twelve months?

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North Manchester letting agents, property traders, houses bought for cash, finders fees paid,mike@brentwoodinvestments.co.uk

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Mike,

an interesting poll, and here is an interesting examination of what the markets think.

Interest rates: News and predictions | This is Money

this is saying that some commentators may not expect a rate rise until as late as 2016 now, and that is cash flow manna from heaven for those of us who are lucky enough to have the pre-2008 BBR +2% or less mortgages.

In my 2009 business plan I had factored in a BBR rate rise to 1% in July 09 and 1.5% by Jan10. I maintained the same assumption into 2010 and 2011. During the last two years, I have been fortunate enough to undertake some significant work on many of our properties with the excess cash flows, and in 2012 will now turn my attention to building up a cash offset to those advantageously cheap mortgages. Whilst my overall plan states that our LTV in the portfolio will be 50% by 2015, the method via which we achieve that LTV is not prescribed. My preferred approach will be to build the cash offset, which will give me far more latitude to be able to cope with future BBR increases and continue to be able to pay the mortgages whilst being able to wait for capital appreciation to kick in. If it does not kick in whilst rates go up, I can always revert back to my previous plan of gradual disposals to force the LTV down to 50%.

The great thing about the last two years is that, as existing portfolio holders, we have gone from having no choice in how we manage the LTV of our portfolio to having SOME choice over how we may manage the future LTV. The longer it takes for this recession to turn into growth, the longer existing mortgage holders will have to rebuild equity, either by cash piling or by gradual capital repayment on those mortgages. Indeed, if BBR remains for ten years (Japanese model), and I said this two years ago, the biggest beneficiaries are those who took the greatest LTV risks, and were able to cash flow their investments without going under. This seems wholly unfair when compared with cautious Granny who put her money into deposits or bonds, but that is what capitalism is about. the big risk takers should have been washed away by 2009, but if they are still surviving, it is likely they will come out on top.

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Just because you are not paranoid, it doesn't mean they are not all out to get you

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Re: if BBR remains for ten years (Japanese model)

I am hoping we follow the Japanese model.

All the best for the new year.

Hi Mike happy new year

I voted for rates to stay the same. With more job losses to come in the public sector, more woes for retail, more strikes as pension and other reforms are pushed through, businesses continuing to plod along afraid to invest, continued real inflation of 5%+ etc there isn't much that a rate rise will achieve to help anybody.

However, the speculators that Gerry mentioned above need to be sorted out because banks with large amounts of underwater mortgages on businesses and properties are not going to want to lend more even to sensible people with sound long term strategies because they will want to limit their exposure. We are seeing this at the moment with many long term landlords unable to raise finance.

What needs to be done? Banks do not want speculators to go under because that will depress the market and cause all sorts of problems in the short term, even though in the medium term, the bad loans must be cleared if we are to reach the stable phase of the cycle. Short term pain would have been the best thing, but nobody has the stomach for it, certainly not policy makers who tend towards populist measures all the way. Like the PFI scandal, problems will stretched far out into the future so that nobody has to deal with them today.

If rates were to go up the psychological impact of a small increase will do more damage as panicked short term focused investors try to drop assets they won't be able to afford or get forced to go under. The actual impact will be small though and most people will be ok. If they go up dramatically as the early 90's again I think most people will be ok and as above, it's not nice in the short term but medium term it is probably best so that sensible investors can borrow again.

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Parmdeep Vadesha
Managing Director
Vadesha Properties Ltd

“the species that survived were not the most intelligent –they were the most adaptable to change” Charles Darwin

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