Banks raising their interest rates might not sound like something to get excited about, but it’s a sure sign of faith in a nation’s economy. For the last six years, the Bank of England’s rates have been at a record low of 0.5% – a move designed to encourage borrowing and stimulate the economy when unemployment is high.
But now, Bank of England governor Mark Carney has suggested that a rate rise could be imminent. It’d be a slow rise over three years, culminating in a rate “about half as high as the historical average” – around 2.5%. So what does it mean for a country when a bank raises its rates, and how does it affect international money transfer?
In situations like this, the most obvious result is that loan and mortgage repayments become more expensive. In the UK, that could spell trouble for the 1.8m homeowners who have never experienced this before. With unemployment rising for the first time in two years, there are worries about how some households will cope. For buyers, the period ahead of rates rising is a good time to take out a fixed-rate mortgage. Not only will the interest be its lowest for years to come, but banks will often compete for custom, driving prices even lower.
The situation for prospective overseas buyers is much the same in that the pre-rise period is a great time to invest in property, but there’s an additional reason. Upping rates indicates a strong economy, which will likely strengthen the currency in question. Transferring money into the country will become more expensive as exchange rates tip in its favour, and buyers will get less for their cash.
The opposite is true for people buying abroad in the stronger currency as the exchange rate shifts. For those living in the UK and looking for a holiday home, it may be worth the wait so that when you transfer money post-rise, you’ll get the best deal possible.
Mark Carney’s comments have already seen the pound spike by more than a cent against the US dollar and euro, and higher interest rates are expected to keep upping sterling’s value. For people in the UK sending money to family overseas or planning holidays in far-flung destinations, this is good news. But for those visiting the UK, the trip will be that bit more expensive.
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