Low interest rates for 3 years, but is now the time to buy?

The Bank of England’s (BoE) new Governor, Mark Carney, has announced his first ‘forward guidance’, saying that the Bank ‘will not even think of raising interest rates’ until UK unemployment drops below 7%. The rate is currently 7.8%. The BoE envisages that this will take about three years to achieve.

For potential property investors this means three years of financial stability, making residential property once more a low-risk investment. Add to this the net rental yields investors and landlords can currently achieve – on average around 8% on Edinburgh student rentals – and it’s easy to see why we have seen more interest and commitment from investors in the past six months than we have in years.

Looking at Cullen Property’s investor clients, shows of interest have increased markedly and we have purchased more than £1.1 million worth of residential property in the last month alone.

There’s no decent investment without risk, I hear you say. And what happens if the interest rate goes up sooner than envisaged by the BoE? After all, the bank did include a few ‘get out’ clauses in its guidance, as discussed in today’s Scotsman newspaper.

Whilst the BoE may interest rates sooner, Carney has made it clear that this would only be the case if the UK’s GDP increases and inflation rises. In other words, the economy would have to be doing better, thus allowing for unemployment rates to drop at the same time.

If that were to happen, not only would investors see their interest rates go up, but the rents achieved by their properties would follow.  It is also likely that the housing market would be improving along with the wider economy, bringing with it capital growth.  A win-win situation.