For around 13 years, interest rates have remained low in the UK. These rates are set to rise soon, driving mortgage prices alongside them.
Why is the interest rate low in the UK?
The UK experienced a financial crash 13 years ago in which interest rates went from 5.5% to 0.5%, according to The Times. Afterwards, the Bank of England’s base rate was stuck at 0.5% for seven years.
Last year, as the world fell into the covid-19 pandemic, UK interest rates dropped again to a record low of 0.1%.
Now, it might be the perfect time to lock up a long-term mortgage rate. That is because interest rates are expected to rise.
Why will interest rates rise?
There are three main reasons:
- The threat of inflation
- Rising rates on bonds
- Economists’ concerns over growth
Inflation exceeded the Bank of England’s 2% target in June, reaching 2.5%. The Times reports that the central bank predicts it will rise to 4% this year. It is weighing up the possibility of raising the base rate before 2022.
The base rate affects the “swap rate” — the price at which lenders can borrow money, and in turn, the price at which they lend money. The higher the base rate, explains the Times, the higher the swap rate. The higher the swap rate, the lower the chance of a cheap mortgage.
Swap rates have risen from 0.7 per cent in August to 0.95 per cent. “Interest rates are going to start going up next year, and this may feed through to mortgages,” Mike Bell, a global market strategist, told The Times