It looks likely that we are going to end up with a hung parliament and commentators are speculating on the impact this will have on the economy as a whole. The general consensus is that that the effect will be negative. This is because markets like certainty, and the wrangling that will take place over the weeks and months after the election about who does what in a coalition government will damage our already weak economy further.
I think that it is possible fears could be overdone and that international markets that have themselves experienced coalition governments may not be as negative as some of our political pundits. I suppose, as always markets will remain stable if our coalition government can be formed quickly and have a confident exterior.
The last time we experienced something like a hung parliament was in the 1970s and the experiences we had do not bode well for the future. Unfortunately there was a run on the pound, and the only way we could protect it’s value was by raising interest rates.
I think we know that interest rates will rise in the future, but the question is when and by how much. Also at present, a lot of borrowers have a base rate tracker mortgages that are typically charging base rate plus 2%, that means they are repaying their mortgages at a highly competitive 2.5%. So it is tempting to hang on to these rates. This is particularly the case at the moment, as to buy security in the form of a say a 5 year fixed rate, means paying interest rates something in excess of 5%. So the price of security has meant some people will have to pay twice as much on their mortgage rate. Clearly except for the ultra cautious this has been unacceptable.
However perhaps now is the time for a rethink. We have had for over a year base rates of 0.5% and I feel that we will not get another year of such low rates. The good news is that fixed rates over five years have edged below 4.5%, and with some predicting the base rate rising to 3.5% in the short to medium term perhaps now is the time to revisit long term fixed rates. If you feel you would be put under pressure if rates rose significantly perhaps the sooner the better, even if we do not ultimately experience a hung parliament.
Kieron Bassett Financial Services have two Independent Financial Advisors. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.
Kieron Bassett CertPFS