Experts now expect to see interest rates starting to rise again by June. This will bring welcome relief to the 38 million savers in the UK, but what will it mean for people with contractor mortgages?
Economists had previously predicted that rates would not rise until the end of 2011, as the UK’s economy struggled to get back to normal after the global financial crisis. However, figures released at the end of last week showed an unexpected jump in inflation, leading to speculation of an early interest rate rise.
Any increase in the base rate will add hundreds of pounds to the annual bill of the many homeowners who don’t have a fixed rate mortgage. A quarter point rise would mean a person with a typical £150,000 mortgage would have to fork out an extra £375 in annual interest.
There are now concerns that mortgage lending companies are taking their best deals off the market in anticipation of an interest rate increase. John Charcoal, the mortgage broker, says that the best five year fix is now 3.99%, up 0.3 percentage points on the rate at the end of 2010.
The Bank of England wants to see CPI inflation fall to 2%. The rate was 3.3% last November and December’s figure is expected to be higher due to rising fuel costs. However, experts now think it could rise to as high as 4% within the next few months.
© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.
