Are interest rates likely to rise?

The golden rule of interest rates: wherever the US goes, the UK tends to follow. So it’s not surprising that while we’re seeing rates rise in the US – with their base rate rising to 1.25% this month (June 2017), and expected to rise again soon – those in finance are getting jittery about the UK’s position. Do interest rates have anywhere to go but up?

The background
One of the key links to interest rates is Britain’s economy, which is slowing down after the tumultuous time of charting unknown territory a year after the Brexit vote, and the aftermath of a rocky general election and that now sees a minority government propped up by Northern Ireland’s DUP. Just half way through 2017 and things are becoming ever more uncertain. However, the UK’s inflation is due to pass 3% this year and unemployment in the country has hit a 40-year low.

Why the speculation?
Worries that the interest rate could rise have sparked due to the Bank of England’s recent votes that saw three of an eight-strong committee vote to raise the base rate beyond the current 0.25%, the first rate rise the UK would’ve seen since 2007 (by contrast, the US has hiked interest rates three times since then). Because the UK’s economy has been stronger than predicted after a vote to leave the European Union, some rate setters in the central banks want to shift the interest rates upwards. The Bank of England’s governor, Mark Carney, has suggested this isn’t the time for “adjustment”, likely due to the fall in the value of the pound and the increase of inflation.

What if it changes? How does that affect me?
Mortgages are at historically low rates at present. This means that they’re likely to go just one way: up. The simple fact is that rising interest rates will massively affect tracker or variable rate mortgages as they depend on following either the Bank of England base rate or a rate set by the lender. Either way, mortgages will rise and monthly repayments will become greater, and likely without a similar offset in the interest rates on savings accounts.

Should I remortgage?
If interest rates do rise, locking yourself in for a fixed-term mortgage could be a great way to beat the rising rates and give yourself some stability in knowing how much your mortgage will be every month. First time buyers will likely look at 2-year fixed rates, but those who already have a mortgage could look for even longer periods of stability. Low interest rates means that banks want people to borrow so money keeps flowing into the economy – it’s time to take advantage as it’s unlikely interest rate will get much lower than they are right now.

Grange Mortgages has been established for over 12 years, with a team of experts ready to help you make the best decisions for your mortgage. Call us today to find out what we can do for you.