Higher mortgage payments might be a thing of the future, but that future could soon be with us, according to the Governor of the Bank of England, Mark Carney. Mr Carney suggested an increased base rate could finally become a reality by “the turn of the year”. He made the comment in a speech on 16th July.
Is this bad news?
It will certainly lead to an increase in interest rates for borrowers with variable rate mortgages. Those on a fixed deal will of course be protected for the life of that deal.
However there are a number of things to be aware of here. Firstly, interest rates have been at their record low of 0.5% since 2009 – a period of just over six years. As such we have all got used to having such low interest rates. Any kind of rise is going to feel significant.
Mr Carney did however reassure those listening that rate rises are going to be small and take place over a gradual period of time. Some have speculated that we could eventually see a base rate of around 2.5%. However even if this proved to be correct, it could be some years before this rate might be achieved.
Is this the time to seek out a fixed rate deal?
Some experts suggest lenders will already be prepared for the first small increase in rates. If this is the case, the first rise may not result in many – if any – changes to the mortgage rates. However not everyone believes this to be true. Some experts think we could see an immediate, if slight, rise to the interest rates attached to variable rate mortgages.
As such it is better to start looking now if you want to find a fixed rate deal you can live with in the financial sense of the phrase.
Will a rate rise actually happen?
This is one of the most important questions of all to ask. Many people have pointed out that Mr Carney has repeatedly warned about an imminent rate rise… only for nothing to happen. Is he simply being cautious and warning about a potential rise to ensure people are adequately prepared if it does happen?
Certainly, it has been mooted that people who have stretched themselves in order to take advantage of the superbly-low interest rates will likely be the first to get into trouble when rates rise. Those who fall into this group should be taking this time to consider a plan of action for the coming months, just in case rates do rise around the turn of the year.
A rise of 2% from 0.5% to 2.5% may not sound like much and it is still historically very low. However it would still result in a significant rise in payments for those on variable rate mortgages.
As such this would definitely be the right time for mortgage holders to assess their position. Taking advantage of a low-rate mortgage while it is still available might be a very smart idea.