I read an article yesterday which challenged what I believed. It is not often you read articles that actually hit hard and make you wonder if you really know what is going on!
This guy was saying that interest rates were lowered to save UK house prices and banks and not the “economy”.
Here is his thinking:
- Imagine base rate stayed at 5%
- People would no longer be able to hang on to their properties and would be forced to sell
- A glut of properties flood the market
- Supply exceeds demand and prices fall
- Prices fall below what is owed to the bank thus a large proportion of the home owning population are in negative equity with no prospect in the short term of it rising out of negative equity
- Due to repossession and bankruptcy laws home owners could hand back the keys and go bankrupt and reinvent themselves a year later leaving the banks with MASSIVE losses
- The losses would be so massive that not even the government could cover it
- All the banks go down
- UK goes down!
So rates are mega low for us home owners NOT to bring the UK out of recession. Interesting theory. If it is true you can eliminate your fears of borrowing! Simply put the government will look after borrowers not savers.
So the rule is:
Borrow on tracker rates which track the Bank of England base rate
Buy at minimum 12% yield
Borrow as much as you can
Put as little in to the deal as possible
That is the golden recipe if you want to be financially free in 3 years if you can get the finance. If you cannot get the finance you simply haven’t asked enough people with finance so get ASKING. The credit card adverts are emerging which is nice to see. The junk mail will be soon arriving so make sure you fill out the applications. Remember:
Property prices are low
Interest rates are low
What more could you ever want or need!