Is it going to happen or isn’t it? The UK base rate rise is turning into one of the most hotly anticipated comebacks of all time. Fixed at a record low of 0.5% since 2009, plenty of UK homeowners have never had to live with a rise. Over the last few months Mark Carney has been paving the way for a hike, but in an interview with the Mail on Sunday published this weekend he drew back a little from the brink. The latest instalment in the base rate rise saga is the news that it is ‘a possibility not a certainty’.
‘If we think there is a prospect, a possibility – that’s a possibility not a certainty – of rate rises, then it is far, far better to let the British people know so they can prepare,’ Carney was quoted as saying. ‘If events mean that does not happen and rate rises are not appropriate, then we will do the right thing and we will not adjust rates.’
While the Bank of England remains ‘focused’ on tightening monetary policy, low inflation, China’s economic slowdown and the cautious approach of the US Federal Reserve has pushed back forecasts for a rate rise. Only one of the bank’s nine policymakers have voted for a hike and investors are not expecting a first move until late 2016 or early 2017.
And it is especially important to remember that whatever happens, changes will be gradual. Carney insists any increase will be ‘modest’ and ‘gentle’. To put this in context, rates aren’t expected to go beyond 1.5% by the end of the decade.
So does this latest pronouncement change anything? No.
It is likely that more light will be shed on the situation around the turn of the year. But amid all the toing and froing the message remains the same: the point is not to fix an exact timeline for the rise but to ensure that UK households are prepared. Carney’s thinking is simple: the more warning people are given, the more likely they are to take steps to protect themselves.
Many forward-thinking borrowers have already moved to secure themselves against a base rate rise. According to bank data, the vast majority of home loans – 79% – taken out in the second quarter of this year were fixed rate mortgages, compared to 38% back at the beginning of 2008. That said, over half of all mortgages are still linked to the base rate.
The Bank’s survey of household finances last December suggested almost half a million borrowers could be at risk of defaulting on their mortgage if their payments increased by 2 percentage points. Around 4% of UK borrowers currently spend more than 40% of their gross income on mortgage repayments, and the Bank said this proportion of ‘vulnerable’ borrowers would rise to 6%.
‘The latest announcement suggests that rates could stay low for a little longer than expected – but it’s prudent to prepare for tighter monetary policy right now,’ says Islay Robinson, CEO of Enness Private Clients. ‘Forewarned is forearmed.’
If you have not yet spoken to a mortgage advisor, now is the time. Give Enness a call today to talk through your options with one of our specialist brokers.