The deputy governor of the Bank of England (BoE), Ben Broadbent, has suggested that an interest rate rise could be higher than the market expects. Although a 0.25% rise would be expected, we could see a rise of 0.5% or potentially even higher.
The BoE’s Monetary Policy Committee (MPC) has recently voted again to maintain interest rates at current levels, but Mr Broadbent also stated he feels the UK is in a slightly better position to handle future interest rate rises.
Interest rates historically rise in response to rising inflation. Speaking to the BBC, Mr Broadbent attributed a rise in inflation to Brexit, and claimed there was a ‘trade off being stabilising inflation and keeping the economy going.’
Interest rate rise predicted by researchers
The other big question is when the interest rate rise could occur. A new forecast from the National Institute of Economic and Social Research (NIESR) has predicted the rate rise will come in the first quarter of 2018, which is sooner than previously expected. Mortgage holders can therefore expect to see a rate rise fairly soon, as what was previously speculation is now supported by major economic research.
Mr Broadbent stressed a rate rise should not be a huge source of concern, as ‘it’s just a rate rise, and we got perfectly used to rate rises of this size in the past.’ However, for those with large loans, a rate hike of 0.5%–or even 0.25%–could have a serious impact on monthly repayments.
How this will affect borrowers?
If you are currently on a variable mortgage rate, you will be impacted by these changes with immediate effect. Those on fixed rates won’t be affected until the end of their fixed rate term—but it’s worth considering remortgaging now, even if you are still in a fixed rate period. Especially if you are in the later stages of your fixed-rate period, early repayment charges (ERCs) can be less than the money you could save in the future by locking in a low fixed rate now.