Bank of England has announced that it will raise interest rates as early as May and it would likely raise it more than was expected.
Higher interest rates will lead to several changes in the marketplace. However, what I want to focus on is an often-overlooked result of higher interest rates.
Investors will expect higher returns.
Because most investors consider risk when making investment decisions, they compare returns based on the level of perceived risk.
As so-called safe investments start to provide higher returns, the margin to the slightly higher perceived risk of property investments narrow.
Investors cannot just increase rental income overnight. So how will they alter yields of investment properties? Lower buying prices, this will have a downward pressure on the investment markets sales prices.
I do not believe we will see massive changes in listing prices compared to sales prices, but I do think it is likely that we will see some increase in that difference.
What do you think?