Interest rates 'could stay at 0.5% until 2013'

Just to illustrate the extremes we read each day about interest rate and general economic predictions, I saw this prediction this week from an extremely well respected personality n the City, Gerald Lyons, who is the Chief Economist at Standard Chartered Bank

He firmly believes that, as a result of the Bank of England's intentions to keep on printing more money, and the fact that whichever party wins next years election will have to raise taxes and cut public spending, then rates will stay at today's rate until the end of The Governor of the Bank of England, Mervyn Kings tenure ends in 2013.

It does seemto be widely accepted by economists and commentators that rates will stay low for a long time. Time will tell if this is true but....

What does it mean if you are in property already?

Well, if you are in property already and benefiting from tracker rates on your mortgages and/or standard variable buy-to-let rates at low levels - it couldn't really be better news.

Many investors who have never really generated big profits from their portfolio will now start to do so. However, I am pretty sure that many will have a shock if they don't proceed with caution and prudence.

Firstly, when you show a profit, the tax man wants his slice. Those who are not used to paying the taxman a slice because they have never previously made much (or any) of a profit prior to today's low rates will have to prepare for that consequence. Its the downside of the situation.

The other thing to be awre of is that rates WILL rise one day - and they MAY rise above the benchmark of 5.5% - which was the rate in place when the credit crunch hit us - and is therefore the benchmark we should look to for future rises.

What if rates eventually rose to say 8%?

If those people who were say breaking even at 5.5% rates would then be losing money at 8% rates, then the message is clear. Raising rents consistently is one of the tools you can use to negate this - and is something I am very insistent on - but many landlords are either too scared or too 'lax' on this subject.

They should be using their current windfall money (as a result of low rates) as a cushion against an extreme change in rates. Inother words, money set aside for a rainy day!

Basic common sense really.

However if rates do remain low for the next 4 years or so, then no landlord who is today benefiting from low rates should have any excuse for not having a solid business with both very strong cash flow and good cash balances in their rental account.

Finally...if you are that way inclined, and money tends to burn a hole in your pocket...just dont go ut and order your Ferrari.... just yet!