Bank of England hints at rate rise
The governor of the Bank of England has hinted that UK interest rates could start to rise "sooner than markets currently expect".
Making a speech in London on Thursday night, Mark Carney said the "economic currents are flowing swiftly, with the economy expanding at an annualised rate of 4% and jobs growing at a record pace".
But he warned there are "rapids ahead", which will require action to be taken.
"There's already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect," he added.
The first change in the base rate for more than five years could happen by the end of the year, according to some experts.
David Hollingworth at mortgage broker London & Country said: "Of course, the Base Rate couldn't stay this low forever but what Carney's speech has done is highlight how quickly things are moving in the economy and property market.
"There's been some speculation that it could start to move next year so following Carney's speech, perhaps it will be more like the end of this year."
So what should mortgage payers and house hunters take away from the governor's speech?
The answer's simple, says Kate Faulkner, managing director of Propertychecklists.co.uk. They need to consider their long-term affordability. "That's the key," she said.
"Look closely at fixed and variable-rate mortgage deals available and work out what would happen to your monthly repayments if the rates increased by anything between 5 and 7%. Doing so will give you the confidence to make sound financial decisions about what you can afford – whether that's buying a new home or remortgaging."
She also warned anyone considering taking out a Help to Buy equity loan mortgage on a new build property that their options could be limited should anything go wrong.
For example, if rates rise and a Help to Buy borrower became unable to afford the monthly repayments, their lender wouldn't allow them to let out their property – even if it would solve the borrower's problem.
Hollingworth added: "Good advice is to prepare for rates to rise and work out what you can afford. Hopefully they'll go up by less than your forecasts and you'll be left pleasantly surprised."
What about savers? Surely rising interest rates would be good news?
Not necessarily. Susan Hannums at independent savings advice site Savingschampion.co.uk said it's far too early for savers to get excited about a potential rise in interest rates.
"With increased speculation of a base rate rise coming soon, savers might be naïve to believe that when rates do rise all savers will reap the full benefits. There has been little correlation between savings rates and base rate for some time now, with thousands of existing savings rates being cut even with no movement in the base rate for over five years."
However, she added: "It's still encouraging that there is some light at the end of the tunnel but those savers that simply put money in a variable rate account now and hope to see improved rates in the short term may be very disappointed.
"It may, therefore, be sensible to spread money between a mix of products from high interest current accounts to fixed rate bonds and some money in variable rate accounts, in order to access the very best rates available now as well as reacting to a changing market going forward."
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.