Threadneedle’s head of commercial property investment has warned that the predicted imminent rise in interest rates could threaten commercial property values across the country. Not such good news for property investors, but something to lift the spirits of any business on the lookout for premises and a good deal this summer.
Don Jordison said that previously low interest rates had provided support to prices, but that projected rate rises could pose a real risk.
Interest rates have held at 0.5% for the past 25 months but, as consumer price index (CPI) inflation rises beyond government targets – over 4% rather than the projected 2% – and producer price inflation (PPI) hits 5.4%, economists are expecting the Bank of England to increase interest rates in the very near future.
However, for now at least, interest rates have remained at their all-time low of 0.5% after a 6 to 3 majority voted to keep them as such in this month’s Bank of England’s Monetary Policy Committee (MPC) meeting. The committee acknowledged the inflation rise, but said it had not yet significantly impacted its view regarding interest rates.
It has been speculated that the rise in PPI was due to increases in crude oil prices caused by recent Middle East instability. It has also been noted that, while CPI remains high, it has fallen from its February figure of 4.4%.
Mr Jordison warned of the indelible link between banks and the commercial property market. He said that ‘if banks cease to benefit from low interest rate refinancing, and rolling over quasi-delinquent or impaired loans becomes more difficult, that would have a compounding negative effect on the market.’
He has predicted a decline in commercial property values by 1–2%, and has suggested that government spending cuts could also impede growth.
So enjoy the low interest rates while you can because pundits are more certain than ever that they will be rising soon.
