Could Your Mortgage Rate Go Up As Early As Spring 2014?

by

Michelle Symonds

Could your large mortgage repayments start to rise as early as 2014? Well, a new report from a leading think-tank believes that there is a one in five chance that they will, a full two years ahead of recent predictions by the new Bank of England chief.

The Mark Carney s recent comments suggested that the Base rate was set to remain at its current level of 0.5 per cent until 2016. However, the National Institute of Economic and Social Research believe that the conditions for increasing the Base rate could be met as soon as next year. We look at the forward guidance policy and when mortgage rates are predicted to rise.

Forward guidance and the Base rate

One of the first changes the new Bank of England governor, Mark Carney, made on starting in the job was to unveil a new policy of forward guidance , never tried before in the UK. This approach will see the Bank of England committed to keep interest rates on hold at their current record low until the official measure of unemployment falls from the current rate of 7.8per cent to 7per cent.

Mr Carney said it meant that more than 750,000 extra jobs would have to be created before the endfor rates to start rising again. The initial predictions were that this would be some time in 2016 at the earliest.

However, a new report from the National Institute of Economic and Social Research has said the unemployment rate could reach 7 per cent as early as the first quarter of 2014 meaning that the Base rate could be set to rise as early as next spring.

However, the think-tank believes there is only around a 20 per cent chance of this and that it did not expect interest rates to rise until a year later, in the second half of 2015.

In its forward guidance on interest rates, the Bank of England s Monetary Policy Committee identified a fall in the unemployment rate to 7 per cent as one of the conditions for an interest rate rise. However, it also stressed this would not automatically trigger an interest rate rise with any decision being based also on wider market conditions.

Other experts also believe that it is unlikely there will be a Base rate rise in 2014. HSBC chief UK economist Simon Wells told the Treasury Select Committee in October that he thought the central bank was likely to make the first increase in the Bank rate after the general election in 2015.

He told MPs that employment could go down and growth take off and there might need to be a rate rise in April 2015 but with the influence of politics on economics he thought it would be at least the second half of 2015 before rates might rise.

Islay Robinson, CEO of London mortgage broker Enness Private Clients also believes that it will be at least 2015 before interest rates rise. He said: I think the MPC will want to see wider evidence of recovery in the UK economy as a whole before they start to raise the cost of borrowing.

The recovery remains fragile and any premature raising of rates could see millions of households struggle to pay their mortgages, severely damaging growth in the UK.

This article has been written on behalf of Enness Private Clients, who offer an expert and focussed service specifically for clients requiring

mortgages

. As a specialist

London mortgage broker

they work with people from all walks of professional life: from lawyers, hedge fund managers and board directors to entrepreneurs and self-employed business people.

Article Source:

ArticleRich.com