It’s been the subject of debate between economists and industry experts since March 2009 when interest rates dropped to a record low of 0.5 per cent. But, Bank of England governor, Mark Carney, has finally announced that the Bank Rate will rise as early as the start of 2016.
Carney recently announced that rates will begin to increase to around the 2.25 per cent mark, albeit at a slow and gradual rate, whilst still remaining significantly lower than the previous historical average interest rate of 4.5 per cent.
Nigel Glossop of Alexander James Mortgage Services discusses how the rate rise will affect homeowners and buyers.
Should I panic about what’s to come?
Whilst it’s never wise to try and predict the future, fixed rate mortgages will continue to remain at record lows with Council of Mortgage Lender (CML) data showing that almost 90 per cent of those buying and remortgaging are choosing to do so on fixed rates.
But, despite the mortgage war continuing between lenders, rates are unlikely to fall any further than they already are.
So why does the Bank Rate need to increase if everything is working?
It all boils down to inflation. Despite it currently sitting at 0 per cent, the economy is improving and unemployment continues to sit at an extremely low level.
If the economy continues to grow, it may begin to ‘overheat’. This is where demand outpaces productivity, which leads to suppliers hiking prices to reduce the demand. However, this may also lead to people paying more for things than they are actually worth.
Who will the rise affect the most?
Those currently on a variable tracker will potentially feel the change the most. For example, if you were paying off a £150,000 mortgage on a lender’s variable rate of 2 per cent. If the Bank Rate reaches 2.5 per cent as expected, monthly payments may increase by around £160 per month*.
However, If you took your mortgage out after April 2014, when the Mortgage Market Review (MMR) was introduced, your mortgage adviser will have stress-tested your financial situation to ensure that you could cope with such a rise so there should be no need to worry if you haven’t had a chance to assess your financial situation.
What should I do?
If you have any queries, or wish to discuss your mortgage situation, you need to speak to a professional and qualified mortgage adviser.
At Chancellors, our team of financial advisers can guide you through the mortgage process. Call 0333 6000 060 to speak to one of our experts.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There will be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
*calculations made using thisismoney.co.uk
Correct at time of publication. The views and opinions expressed herein are those of the individual contributor and do not necessarily reflect those of the Chancellors Group of Estate Agents Ltd or its subsidiaries. References to legislation, best practice and other matters with legal implications such as fees, rules and processes are included for information and editorial purposes only and are not authoritative, nor should they be interpreted as advice. When in doubt you should only take advice from an industry professional or solicitor where appropriate. E&OE.