After the Brexit vote came in towards the end of June, everyone has been watching and waiting to see what the immediate effects might be. One area of particular interest has been the base rate – the rate that directly affects the interest rates applied to mortgages, not to mention bank and savings accounts too.
Last week we had a number of reports speculating that the base rate was about to fall. The current rate of 0.5% has been in force since 2009, and the thought that it could go even lower was unthinkable a few months ago. As it turned out, the Bank of England decided to keep rates as they were – for the moment at least.
A warning from the Governor of the Bank of England
However, with that said, the Governor Mark Carney issued a warning last week relating to the likelihood of a forthcoming rise in interest rates. While rates have stayed the same this time around, it is thought the Bank of England wants to hang back and see how things progress ahead of its next meeting in August.
It may have come as a surprise to some then that Mr Carney chose that same week to warn of the chance of rises in the interest rate. However, it seems that he was giving a warning of possible rate rises in the coming years, rather than in a more immediate sense.
Seven years of low mortgage rates
Anyone who has taken out a mortgage in the past seven years will have had a choice of many super-low mortgage rates when deciding which lender to go with. Anyone who has fixed their rate for a certain period of time will have protection against possible future interest rate rises.
However, it is possible that some people will have been lulled into an expectation that mortgage rates will remain as low as they have been for the past seven years. The fact that the base rate could drop again in the immediate future could well serve to reinforce that feeling.
Mr Carney was clearly warning that the base rate may well have to rise in the months and years to come, possibly as a result of Brexit. As such, it would indeed be wise for mortgage holders to be aware of this, and to plan accordingly. While the Mortgage Market Review reduced the odds of people taking out unmanageable mortgages, there could still be some who might struggle if rates did go up.
Preparing for the future
The uncertainty of how things will pan out now we are on course to leave the EU will be felt in many ways. however, with that said, mortgage rates are bound to start rising again eventually anyway. It does therefore make sense to plan ahead and for mortgage holders to make sure they can cover a rise in their mortgage payments if and when this should eventually happen. It will make it much easier to cope with when the time comes.