If you’re unclear about whether the Bank of England will raise interest rates, relax because you are not alone. In fact, you are among six out of ten homeowners who are confused about the uncertainty surrounding interest rate hikes during the coming 12 months. Resolving the confusion is important because new research has revealed that a rise in interest rates would increase mortgage repayments by £1.1 billion by the end of 2015.
Interest rates have been at historic lows in recent years, but, according to experts, a rise is on the horizon, and will likely be implemented within the coming year. Should the forecast prove true, homeowners will be dealt a hard blow because it would mean struggling financially to try to cover additional costs.
Conflicting and contradictory statements from politicians, regulators and experts are at the core of the confusion. According to research from Barclays Mortgages and the Centre for Economic and Business Research, more than 61 per cent of homeowners weren’t clear on whether there’d be an interest rate hike, and 46 per cent were unable to recall the current base rate. Adding to this uncertainty is the sense of confusion many homeowners feel about their mortgage repayments. Approximately 88 per cent of homeowners were unaware of the Bank of England's forecast of an interest rate hike before the end of 2015.
The Centre for Economics and Business Research’s (CEBR) forecast of a £1.1 billion collective increase for homeowners if there were three rate hikes of 0.25 per cent each during 2015 would mean an average increase of £118.97 on mortgage repayments per household by the end of the year. Even one increase of 0.25%, means an annual increase of £81.12 in repayments, which collectively amounts to an increase of £723.8 million. With 76 per cent of people admitting that they haven’t put any money aside to cover potential increases, any rise in interest rates is sure to stretch homeowner’s financial resources to the limit, or tip them over into serious financial trouble.
Barclay’s managing director of mortgages, Andy Gray, iterated the importance of homeowners reviewing their current situations, and urged them to seek advice on what their next mortgage step should be. He emphasised the importance of financial health for homeowners, and encouraged them to prepare for interest rate increases during 2015.
At its first monetary policy committee meeting held on January 8 of this year, the Bank of England kept interest rates as they are. Experts predict that the first rise in rates will only happen toward the end of the year or early 2016, as inflation is expected to fall further with the slide in oil prices.
The base rate which was slashed to 0.5 per cent during March 2009 remains in place, taking the UK’s record low interest rates into the seventh year. If you plan on upgrading your home, now is the time to get it valued and on the market.