23 July 2015

Rates to rise towards the end of the year?

The Governor of the Bank of England announced last week that interest rates are to raise, probably at the end of this year or early next.  Although though this is no surprise and it is quite likely that we have all been tentatively expecting this announcement for some considerable time now, very few industry pundits have publicly agreed with this statement, at the time of writing!  

So, if it does happen, what will it mean?  Well, the cost of borrowing will be the first noticeable impact with any mortgage on a bank base rate tracker following the upward trend almost immediately, with variable/discounted rates likely to be closely behind.

For those on vary low tracker rates this may not initially be considered too painful if you consider that bank base rate was in the mid 5% range prior to the dramatic and sustained low rate period which is now longest in modern history.  However, to put it in perspective, given that we live in an area of high value properties and accompanying high level mortgages any rate rise may be more meaningful.  For example, a 1% increase on an interest only £200k mortgage will mean an increase of circa £2,000 per year (£167pm).  This needs to be factored into any family budget. To make matters worse, it is anticipated (by the Governor) that base rate will level out around 2.25% so this makes the maths even more important.

If you are currently on a fixed rate, no change for the term of your deal.  But, you may see your reversion rate (the rate you will move on to at the end of the fixed rate period) increase. 

However, with a reported one million people paying their mortgage by credit card and a further three million people who have never had a rate rise, any movement in bank base rate will be closely monitored to see impacts on the economy and activity as 'normalisation' begins. 


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