History of Rate Rises, You Need To Budget Now.
Today, as expected, the Bank of England Monetary Policy Committee (MPC) met and agreed to increase interest rates 0.25% to 0.5%pa.
We could have gone ahead with headlines like “Interest Rates Double” or “First Interest Rate Increase for 10 Years” but the reality is that they are still historically at all-time lows.
History of Rate Rises
An interesting graphic on the BBC today highlighted changes in interest rates over the last 50 years or so. Unless you are over the age of 40, we guess you have simply got used to low interest rates. You will not appreciate that many of us have lived through and paid mortgages with rates as high as 15% and 16%pa.
Whilst we are not suggesting that this should be an immediate concern, we believe and have continually warned people to plan for higher interest rates.
The UK is heading for Brexit. The UK is heading for economic slowdown and possible recession depending upon Brexit negotiations.
The rather nervous approach by the Bank of England to this interest rate increase and signalling possibly another two rate increases in 2018 and 2019, weakened the pound even further today. If the £ sinks (today it has by over -1.3% against the $), FTSE 100 shares rise (indeed FTSE 100 has already risen by 0.9%). We believe speculators will eventually ‘play’ the £ and at some point the Bank of England will have to defend it with interest rate increases to strengthen it.
Take a look at the BBC graphic and prepare yourself for rates potentially moving quite quickly at some point over the new 4/5 years. They are not held at 14%, 15%, 16% highs for too long but certainly rates of between 5% and 8% pa are commonplace for long periods of time.
For a £100,000 repayment mortgage over 25 years, the monthly payments for each given interest rate would be:
Make sure you look at your budget and try to overpay your mortgage or look where you can cut back spending to cope with any future rises.
Use our Mortgage Costs Calculator to work out potential repayment amounts if rates rise further.