Interest Rates Will Rise

Interest Rates Will Rise.

This week saw the sixth year anniversary of Bank of England base rates being held at 0.5%pa.

Interest rates were held at 0.5%pa this week by the Bank of England monetary policy committee.

Many, including ourselves, suggested last year that interest rates would rise in 2015 yet given the slowdown in the European economy and the fall in oil prices resulting in much lower inflation, the risk of interest rates increasing has subsided for the time being.

Comment

Many commentators and indeed many of our clients are now trying to 2nd guess when interest rates will increase again. Even the Governor of the Bank of England, Mark Carney, has suggested that this position of low interest rates will not remain in place for long.

To justify this argument further: when you now apply for any new mortgage or remortgage your mortgage lender is required to stress test your ability to pay your mortgage for example if interest rates were to rise by an additional 5%.

It is not that long ago, in the Margaret Thatcher years, that we saw inflation rates in double digit figures and interest rates on mortgages and loans in excess of 15%pa.

We believe that in the short term inflation will remain low however wage and salary rises are now over and above inflation and as a result this will drive demand for all goods and services. The net result of this is that the economy will start to overheat, property prices will rise again and the bank of England will increase interest rates.

Whilst we do not expect interest rates to hit 15% you should be aware of and plan for interest rates of between 7% and 10% per annum within the next five years. Our view is plain and simple, do not take on excessive debt and if you have surplus capital we suggest you should consider clearing debt down as a priority. Interest rates will rise.