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eZine January 07
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Market rates
The December meeting of the Monetary Policy Committee voted for no change in the base rate of interest, leaving it at 5.0% in line with most market and commentator expectations. Whether or not we shall see further increases in early 2007 is currently for debate. As a non-economist I think there is a possibility (perhaps even a probability) that rates will rise again in the spring by .25%. There are those, however, who believe that we have reached the peak for the time being and I have read at least one well-reasoned article suggesting that the next move may well be down. Somehow I doubt it! To a very large extent it will depend on the U.S Federal Reserve and the European Central Bank - nothing in our world happens in isolation. Certainly the US dollar has been heavily sold against most major currencies, with both Euro and Sterling recently posting highs which have not been seen for many years. Indeed, the December 1st GBP rate against the Dollar of 1.9847 was last seen in August 1992 - more than 14 years ago! With current interest rates at 5.0%, what is the market's view about the future? The best guides are the 3 month LIBOR (London Inter-bank Offer Rate) and 3 and 5 year Swap (fixed) rates. The first, at 5.27% (up from last month) suggests an impetus for increase in the short term, whilst the 3 year Swap at 5.30% (unchanged from last month) and the 5 year Swap at 5.21% (also unchanged from last month) reflect the market's view that interest rates may edge up a little, but are unlikely to change dramatically for some years. The market isn't always right of course, and our rates will be affected by what happens in the USA and the rest of the world, but for now there are still reasons to remain confident about the future. House prices in the UK are reported to be edging up, though the actual percentage amount varies depending on your source. The RICS (Royal Institution of Chartered Surveyors) UK annual house price inflation rate for 2006 stands at 9.0%, with a 2007 prediction of 7%, though there are significant regional differences. If future years continue at the same rate, current prices will therefore double in the next 8-10 years - remember the "Rule of 72"? A recent report from Lombard Street Research forecasts a national average house price increase of 10-15% in 2007. Whilst that sounds very much higher than everybody else's prediction, we should remember they forecast 10% for 2006 so were extremely close. Their reasoning includes record mortgage lending, low housing stocks and affordable mortgage interest rates, but suggests that if prices do increase at this rate in 2007, there is a possibility of a bubble developing during 2008. Alternatively, we are continually bombarded with predictions of house price melt down but, whether it happens or not, as always, the key is to buy below market value. To rely for your profit on the market as a whole increasing will never give you that extra wealth you are seeking. In the hunt for BMV (below market value) opportunities, one of the best places to look is the off plan market, increasingly overseas. We can help you in your search! Other Stories...
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