Interest rates remain at historic low, when will they rise?


Interest rates remain at historic low, when will they rise?

The Bank of England (BoE) has held the UK’s base interest rate at its record low for yet another month, meaning it’s now been at 0.5% for more than six-and-a-half years.

However, the BoE does suggest that a rise in the base rate is coming at some point but analysts are divided over when this will be. Let’s take a look at what the economists are predicting and how an increase in interest rates could affect the price of your mortgage.

Six-and-a-half years

The base rate has been set at 0.5% since March 2009, meaning we’ve now had 80 months with no change in interest rates. The reason it’s been low for so long is due to the performance of the UK economy but also global economic uncertainty, with weak oil prices and the Chinese economy being some of the factors contributing to the interest rate staying at the same level.

Analysts are divided over when the base rate will increase, with some predicting it could rise as early as May 2016 while others think it’s likely to be later in 2016 or even early 2017. However, the reality is that no one knows when the base rate will increase, although it’s thought that we’ll get more of an indication if the US Federal Reserve decides to push up its interest rates next month.

One thing’s for sure though – it’s when, not if, the base rate will increase and although it might not be for a few months yet, homeowners should be looking out for any signs of a rate rise. When an increase in the base rate starts to look more likely, banks and mortgage lenders will probably start putting up the rates of their fixed deals, so it could pay to fix early. If you’re planning to wait until the base rate increases before you change your mortgage deal, you may miss out on getting a really cheap fixed rate deal.

Why remortgage?

When the base interest rate does start to rise, it could mean you’ll start paying more for your mortgage if your initial fixed or discounted rate deal has come to an end. Once this happens you’ll usually be moved onto your lender’s Standard Variable Rate (SVR) and this is rarely the cheapest rate. It usually tracks the base rate but is typically a few percent higher, so if interest rates to start to increase, you’ll end up paying more for your mortgage.

By remortgaging, you could fix onto a deal where you’ll be paying the same for two, five or even 10 years. It’s worth seeing what deals your existing lender is currently offering and take a look at a range of the other high-street lenders as well. You could also speak to a mortgage broker like Ocean as they may be able to get access to some deals that are only available via brokers, not on the high street.