Remortgaging and refinancing in Spain

In the last episode I commented on how dangerous the inaction by the Bank of England regarding interest rates in the face of rapidly rising inflation. Further confirmation was given by the data for Spain in October, with inflation accelerating at tyre-screeching pace of 5.5% overall. At the base of this were energy prices, which were also transferred to food, heating, and rental costs (especially rentals in the south of Spain). This value for Spain was the biggest increase since 1992, when the old peseta was under pressure by the strong Deutsch Mark. The inflation rate would have been much higher were it not for a reduction of energy taxes by the government. Yet another indication that higher interest rates *will* be coming, as the central banks will not have any other choice - or risk blowing everyone's savings up.

Having said that, the recent scare of the new Omicron variant has caused a big 12% drop in oil price in the markets, which might provide temporary relief to consumers and central banks alike. This would be a very strange phenomenon, a record high inflation rise, followed by record high drop.... Nevertheless, oil prices in the markets are famous for being volatile, so my bet is that interest rates will in fact rise anyway by 2nd quarter of 2022. Mark this post to see how well it will age :-)

The Bank of England has surprisingly kept interest rates low at 0.1%, despite blatantly obvious inflation (average UK house price hits record £270,027). The effect on the GBP has been negative, reducing purchasing power both in the UK and in exchange rates with other currencies. To add insult to injury, Andrew Bailey, the Bank of England governor has said "I'm very sorry that's happening [the 5% rise in cost of living]". I will allow readers to form their own opinions about banking officials in general, mine was formed already back in 2008 :-) In any case, one wonders what the effects of this would be on Spanish properties. The Spanish market has been relatively boyant and the number of sales on the rise. It remains to be seen whether the loss of foreign-exchange power is higher than the fact there is ample liquidity at low mortgage rates for enabling buying a property abroad. I personally would expect a negative impact on prices for luxury villas like these, especially in high-end markets like Marbella, however this may be a good thing - buyers might grab this opportunity to buy now because again, in the BOE's own words "higher rates are coming by April". As always, I take banker's words with a ton of salt, because we must always watch what they do, not what they say. However, they might indeed not have a choice given inflationary pressures, so perhaps this is really the last chance to buy with low interest rates for a while. 

Something to watch closely...