What Does The Interest Rate Rise Mean For Property Investors?
Blog By:
Jacob Ragan
Investment Specialist Northern Property Partners
Introduction:
Yet again we are hearing that the Bank of England’s (BOE) Money Policy Committee (MPC) has voted to increase the base rate to 5.25%. What does this mean for investors?
In all honesty, in my opinion this doesn’t make a huge difference. Ultimately, this is a government monetary policy in response to the lingering rate of inflation. There is no hard and fast rule of how to curb inflation using monetary policy and inevitably tweaks will need to be made such as the recent rise. Once inflation is under control, the bank will likely start to reduce interest rates again to get more people borrowing and keep the economy moving. The last thing the government wants is deflation so they will be cautious not to raise interest rates much further.
Let's Look At The Facts
The current rate of inflation (CPI) still sits around 8%, meaning money in the bank is still devaluing at a rapid rate even with the increase in interest rate paid on your current account. The real rate of return on your bank account is still negative.
Even though it is set to reduce, inflation will likely still remain higher than the 61 year average of 5.1% in the UK from 1960 to 2021 and highlighting the importance of putting your hard earned cash to work in the coming years. Once inflation reduces, we will likely see a reduction in interest rates, albeit not to the lows of post COVID-19. Investors will need to become comfortable with this higher rate as when you compare the potential returns of a 15% ROI (return of investment) investment property compared to money in the bank, there is only one winner when it comes to growing your wealth. Not to mention, as a store hold of wealth, property continues to perform and when you factor in the compounding effect of capital appreciation in the North of England, NPP investors are achieving nearly 40-50% returns on their money each year.
Conclusion:
All in all, the interest rate rise hasn’t changed much in my opinion. If anything, it highlights the importance of making substantial returns on your cash through a proven asset such as property. The savvy investors amongst us will realise that the longer this higher rate of inflation sticks around, the weaker your purchasing power becomes, meaning you need to start investing now to not miss out!
If you want to learn more about how you can grow your wealth in the face of inflation through property, then reach out to the team as we will be happy to help.
