Mervyn King, the new Governor of the Bank of England has raised his own concerns over interest rates in the future. It would appear that the current base rate of 3.5% might now be set to increase.
Mr King said that the UK was ˜vulnerable and stretched", especially in the light of the World economic recovery starting to appear. He also said that interest rates would increase ˜at some point soon".
Our View
For some considerable time we have been warning people to be careful when borrowing money on such low interest rates. When rates are low, so are repayments but interest rates and the UK economy on the whole is fairly volatile at the moment. If interest rates rose by just 1% then it could add around £50 per month onto an average mortgage repayment.
Many industry commentators are split with their views over interest rates and this is causing confusion for many. However, it is our view that rates will have to rise in order to slow down consumer borrowing. We have recently seen the number of longer-term fixed rate mortgages fall. We have also seen set-term savings rates rise. For example, generally gone are the days of 3% fixed rate mortgage for 5 years. Likewise, we have seen savings rates offered recently at 5% for the year. Lenders, banks and building societies will all have their own views but this has to be some indication.