When will interest rates go up?

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“When will interest rates go up?” would seem a silly question to ask in 2014 when the new governor of the Bank of England, Mark Carney, has told us in no uncertain terms that interest rates will remain low for a very long time. This sort of “forward guidance” from the Bank is extremely valuable when you’re taking on a huge mortgage – and who hasn’t got a huge mortgage these days?

On the back of such reassurances the UK housing market is absolutely red hot right now – and according to every report you read, it’s getting hotter by the day.

Will interest rates rise and will the UK property bubble burst?

But all is not as it seems.

The Bank of England’s “forward guidance” looks like it may not be as robust as we were led to believe. Now we hear that the BOE is expecting to revert to a base rate of around 2.5% very soon. Not wanting to blow my own trumpet that’s exactly what I told my members six months ago following a meeting with my own bank insiders. The impact on anyone with a mortgage will be devastating. It’s absolutely vital that everyone understands that a 2% increase in lending rates can easily mean that someone already on a 2% mortgage will see their monthly payments double.

What is your current mortgage rate and what does that work out at a month?

Now, work out what those payments will be if the rate increases by 2%. Remember, you don’t multiply your payment by 2% to get the answer. You work out what 2% represents as a percentage of your current rate. For example, if you’re currently paying say 4%, then a 2% increase is a whopping 50% increase in your monthly bill. I sincerely hope everyone understands this and how it will impact on their mortgage payments on a monthly basis.

Of course, it’s highly unlikely that when interest rates do start to rise that they will stop at 2%. The BOE is fooling both itself and us if it thinks it can control interest rates. History shows that the exact opposite is true and the Bank is nothing more than an incompetent meddler in such matters. Witness the current rate of 0.5% if you need to see how little control the central bank has either in the medium or the long term.

If you are about to take on a larger loan in an attempt to get on the housing market gravy train, I suggest you tread very carefully indeed. We’ve all been here before – many times.

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