By Jo Eccles
Anyone buying a property with a mortgage should be paying close attention to interest rates, because if they change, so do your monthly mortgage payments if you’re on a floating mortgage rate.
Interest rates are at historically low levels, currently at 0.5%, so borrowing is currently very cheap. This has been a driving factor of the property market, encouraging buyers to make the most of cheap borrowing and enabling them to get onto the ladder or move within it. Interest rates can change on a monthly basis as the Bank of England meets monthly to announce whether interest rates will change or remain the same. We have seen interest rates remain at a record low of 0.5% since 2009, and there has been an ongoing and widespread debate on when they will increase.
The futures market shows expectations on whether interest rates are due to rise, and when. Futures currently suggest that markets are forecasting a 70% chance of an increase in interest rates to 0.75% by this summer. Whether or not this happens remains to be seen, but if you’re considering buying or indeed you already have a mortgage, it is worth keeping an eye on economic data and forecasts.
We always advise our buying clients to factor in a possible interest rate increase when they’re doing their sums. Whilst forecasts suggest only a small increase, it’s worth building in some leeway into your monthly outgoings to allow you to pay a higher mortgage rate if they do increase. The same should be said for utility bills. With energy prices increasing, factoring in possible higher utility bills is also prudent.
Interest rates are currently low, so there’s no need to panic, but with any financial commitment and investment, it’s always sensible to build in a buffer for your finances just to be on the safe side.
If you have a question you’d like Jo to answer please email firstname.lastname@example.org or tweet her @joeccles.