The Bank of England (BoE) announced that it would hold interest rates at a record-low of 0.25 per cent in September, but for how much longer this will low rate will remain unchanged is not known.
While the economy is growing and job creation is increasing to near-record levels, choosing to hold interest rates at the current rate doesn’t make all that much sense.
And that’s why experts predict that the rate could rise well before the end of the year, giving mortgage holders pause for thought.
Even the slightest of rises could have significant implications for commercial and personal loans. New figures reveal that a family with a £200,000 mortgage on a 25-year term will pay almost £25 a month more if the rate goes up by just 0.25 per cent.
That’s around £300 a year, or £7,500 over the duration of the loan.
But Mark Carney, the Governor of the BoE, said the rate was likely to rise by more than the markets are expecting.
A rise of 0.5 per cent would cost the same family a significant £15,000 more over the duration of a 25-year loan. Steeper still, a rise of one per cent would cost £30,000 more over the duration of the loan.
For those on a standard variable rate, a sudden rise in interest rates could have a significant impact, whilst those on a fixed rate are not likely to be affected until the end of their term.
While the industry has implemented tougher controls since the recession, which require borrowers to demonstrate they can afford the mortgage they sign up to, there are a growing number of experts who are worried about the effect of a rise in interest rates.
There is also growing concern for those heavily burdened by finance and credit card debt. A recent study found that outstanding car loans, credit card balance transfers, and personal loans have increased by 10 per cent in the last year alone.
The BoE’s financial stability director, Alex Brazier, said the increase in debt was dangerous to borrowers, lenders, and everyone else involved in the economy.