The Bank of England’s Monetary Policy Committee voted to keep interest rates on hold at 0.25% at its September meeting, but analysts say the tone of the discussion about rates has changed and a rise could be coming sooner than many expected.
Speaking after the MPC meeting, Bank of England Governor Mark Carney said: "The majority of members of the Monetary Policy Committee, myself included, see that that balancing act is beginning to shift, and that in order to return inflation to that 2% target in a sustainable manner, there may need to be some adjustment of interest rates in the coming months.
"Now, we'll take that decision based on the data. But yes that possibility has definitely increased."
The Bank has also stressed that rates may need to rise more sharply than markets have been expecting.
After the comments from Mark Carney, Paul Hollingsworth, UK economist at Capital Economics, predicted that the MPC would vote to raise interest rates in November of this year.
He said; "If the economy continues to hold up, and there are clearer signs that wage growth is building, then the first hike could come somewhat earlier than we had previously envisaged, possibly as soon as the next meeting in November alongside the Inflation Report.”
How will rate rises affect you?
For existing mortgage customers, a rise in interest rates will lead to higher monthly repayments. For those currently on fixed rate deals, the effect won’t be felt immediately, but depending on when their two or five year term finishes, these borrowers will eventually face higher repayments.
For borrowers with variable or tracker mortgages, or those with interest only loans, the effect will be felt more immediately. Lenders with the lowest standard variable rates, those below 5%, will probably be the first to increase their rates.
Meanwhile, homeowners with interest only mortgages will also see their monthly repayments increase, but these higher monthly repayments might, in some cases, reduce the amount of money they are able to put into a repayment vehicle to repay the principal loan when the interest only term ends.
While the initial increases in rates are likely to be small, their effect will be cumulative as they continue rising over the next few years. According to research by Halifax, someone with a mortgage advance of £150,000 could eventually find themselves paying £161 a month more than they are now.
We can help.
At Negative Equity UK, we’re property debt specialists. If you are worried about the impact a rates rise could have on your finances, take a look at our reviews and contact us on 0161 631 2727 or online at negativeequityuk.com to arrange an initial free, no obligation consultation.