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Anticipate Rate Rises

Written By On 26/02/2014

By the end of 2015 an average £666 per month mortgage could cost £21 more amounting to £252 across the year if interest rates begin to increase very slowly and gradually as the BOE governor suggested recently.

However, according to research conducted by the Centre for Economic and Business Research, if the bank rate was to rise more severely, it could be much worse.

The CEBR predicted what it would cost the average homeowner if base rates were to rise from the all time low of 0.5 per cent to 1.75 per cent as an example. They said this was a viable possibility that could conceivably happen. In this circumstance it would work out on average, an extra £48 per month totalling £576 throughout the year.

The Financial Flexibility report presented a series of possible outcomes based on the CEBR’s figures on behalf of Barclays Mortgages. The forecast they deemed as the more likely, which runs alongside the thoughts of most economists, is that the Bank of England will raise the base rate three times between May and December of next year.

It is anticipated that they will go up by a quarter per cent each time every three months. If their assumption is correct the interest rate will then stand at 1.25 per cent. This scenario appears to be shared by both banks and building societies. Consequently, fixed rate loans have been rising across the board.

Two of the most competitive offers for five year fixed at the moment can be found at the Woolwich Building Society and Nat West. Both are displaying 2.95 per cent, a rise of just over half a per cent on the best rate that was available last summer.

Barclays Mortgages Managing Director Andy Gray advises:

The findings show some mortgage holders commit over a fifth of their monthly income to repayments and that there is a huge difference in these figures between income groups. With this in mind, and the future interest rate rises, it is essential for all homeowners to seek advice from mortgage lenders so they are equipped for changes regarding disposable income and flexibility with their life.