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Is your money working hard enough?

Over the last few years, I have thrown myself into learning as much about investment as possible. Most of us don’t really understand the impact of the Bank of England (BOE) base rate, inflation, and mortgage rates. I wanted to share my views on the topic.

Let’s face a lot of us don’t tend to pay this area too much attention, we only worry about mortgage rates when we move house and the BOE is just something we hear about every now and then.

Now is actually a fairly critical time to protect any wealth that you have accumulated over the last few years (or maybe you have inherited some money and need to protect it long term).

What is the BOE base rate?

The Bank of England (BOE) base rate sets the level of interest all other banks charge borrowers. ** The Bank of England explains the interest as:

What you pay for borrowing money and What banks pay you for saving money with them.

In summary, this low rate means borrowing money is cheap BUT savings in the bank will not grow very much. This is a big problem for savers because the cost of living is going up (inflation)

What is Inflation?

Inflation is described as “the rate at which the general level of prices for goods and services are rising”***

We all look back and childhood and remember your favourite chocolate bar costing 1/5 of what it does now. This is inflation at work!

What does this mean for me?

If you have a lump sum of capital in the bank (Say £120k) earning 0.1% interest and Inflation is higher than the interest rate… every year you can buy less with your money. Your cash in the bank is literally losing value daily.

As of today, the BOE Base Rate sits at 0.1% and inflation over the last 5 years has sat at somewhere around 2.3% a year (ish).

Thankfully due to low inflation borrowing is cheap right now, so if you invested that £120k into a property worth £300k (let’s say a shared house set up and managed by an investor) over 5 years that money would be far more valuable!

Why… as property prices increase you gain capital growth on the property value (£300k) not on what you invested. Property has gone up roughly 14% in the last 5 years* which means ignoring any rental income you would have made roughly £42k (less any fees and costs) over this period on your £120k investment.

Property has historically performed as an investment vehicle, and even with the market uncertainty as long as the intention is the hold the property long term it should be a good place to protect your wealth.

As long as the property generates rental income the underlying value is only important when you need to sell it which is why the short term outlook should by too much of a concern.

i.e. let’s say the market stood still for 10 years if the property generates £800 a month income that’s still £96k in 10 years which if I’m not mistaken is considerably more than the 1% you will get from bank interest.

Most people don’t jump into property as they are time poor or don’t feel they know enough, this is exactly why I started Highline property, a business-based approach to growing wealth through property.

Did you find this article useful or think someone would, please like, comment or share so your network will see it.

If you’re looking to invest in property and want a solid investment partner or know someone who does please feel free to get in touch.

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* https://www.globalpropertyguide.com/Europe/United-Kingdom/price-change-5-years

** https://www.bankrate.com/uk/mortgages/bank-of-england-base-rate/

*** https://www.investopedia.com/terms/i/inflation.asp

Please note this is just my opinion and does not constitute any form of advice or recommendation by and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.