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eZine November 06
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Market rates
"And I'm sure there's at least one more increase in 2006." That's a prediction from our October e-zine which came true at the November meeting of the monetary policy committee. 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%. Beyond that it will depend very much on the U.S Federal Reserve and the European Central Bank. Mervyn King, Governor of the Bank of England, claims to find it extremely hard to assess the economic requirement because nobody can tell him with any certainty (at least not to the nearest million) just how many people are living in this country! 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 5.23% (up from last week) suggests an impetus for increase in the short term, whilst the 3 year Swap at 5.30% (down from last week and unchanged from last month) and the 5 year Swap at 5.21% (down from last week and last month) reflect the market's view that interest rates may edge up a little, but are unlikely to change dramatically for some years. For comparison, the current EURIBOR 3 month rate is 3.604% (European Inter-bank Offer Rate). 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. However measured, the official UK annual house price inflation rate in September (the latest government figures available) stands at 8.0%, though there are significant regional differences. Unfortunately this has no impact at all on the setting of interest rates because the European method of measuring inflation, which the government has adopted, ignores the cost of housing. It is quite likely the increase for the whole of 2006 over 2005 will settle around the 7-8% mark. If future years continue at the same rate, current prices will therefore double in the next 9-10 years - remember the "Rule of 72"? 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!
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