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House prices likely to be supported by low interest rates

08 Jul 2015

Gilts are currently displaying safe-haven characteristics, and are rallying

This is probably due to a number of factors, such as the turmoil caused by the Greek situation, as well as a large decline in the Chinese stock market and the US stockmarket looking vulnerable. These developments cause investors to put their cash in safe-havens such as US, UK and German government bond markets

Since the yield (interest received by the buyer) moves inversely to the price, it puts downward pressure on other interest rates such as LIBOR (London Inter Bank Offer Rate). LIBOR is a key determinant of UK mortgage rates

The yield on 2 year gilts currently stands at about 0.49%, 5 year gilts at about 1.37% and 10 year gilts about 1.83%. 

Combine this with the fact that competition for lending in the UK is high due to the positive outlook for house prices, and you get both variable and fixed mortgage rates currently at their all-time lows

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