Rates set to rise at the beginning of 2016
It’s been the subject of debate between economists and industry experts since March 2009 when it dropped to its 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.
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 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 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 who will be able to guide you through the mortgage process.