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Friday, December 11, 2009

Interest rates - where next?

Its a critical question for many landlords trying to manage the financing of their portfolios.

Do I fix now before interest rates shoot up, or do I ride the current historically low interest rates hoping that I can jump onto a reasonable fixed rate before rates rocket skywards.

The announcement this week by the MPC to keep rates on hold for another month is a welcome move for many landlords leading up to Xmas. But what about the New Year?

We have examined before the concept of the SWAP rate as an indication of future interest rates. So what are they now showing us?

They reflect that rates will only have risen to around 2% in two years. To demonstrate the change in predictions, I've listed some swap rate prices:

Mid-August 2009
• 1.10% in one year
• 2.08% in two years
• 3.52% in five years

Early October 2009
• 0.86% in one year
• 1.75% in two years
• 3.11% in five years

Early November 2009
• 1.02% in one year
• 2.04% in two years
• 3.42% in five years

Late November 2009
• 0.90% in one year
• 1.75% in two years
• 3.03% in five years

Early December 2009
• 0.95% in one year
• 1.83% in two years
• 3.12% in five years

December 10
• 0.92% in one year
• 1.76% in two years
• 3.10% in five years

Source: Bloomberg

This points to the fact that rates could be at 1.5% by the end of next year and then nearing 2.5% the following year.

Much will depend on inflation, the world economic recovery and how easy the government finds it to refinance the massive public debt.

At least landlords should be able to relax for a few more months but with the level of economic uncertainty prevailing all bets are off for now!

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