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For first time in almost a year due to a rise in inflation to about 2.5%, probably caused by higher oil prices filtering into our energy bills.
It'll probably only add £10-20 max a month to my mortgage but in psychological terms it feels a lot more. Do you think interest rates are on an upward trend and do you think it will surpass 5% by the end of the year?
I too can remember interest rates of getting on for three times what they are now (and of course the rampant inflation of the time), and have absolutely no desire to return to those days!
A hike in the bank base rates doesn't necessarily add anything to your mortgage repayments - it will only do so when the lender decides to increase their mortgage rates n(unless you have a base rate tracker mortgage).
I personally, think that it is unlikely that the base rate will EXCEED 5%, by the end of the year. AFAIK, the BofE committee only meets once a month, so there only four meetings left in this year. I think it unlikely that they would put the rate up by more than a quarter, each time and I can't see that that any further rise will be necessary between now and December.
The reports that I have seen have blamed fuel prices but these are expected to moderate in the medium term. Growth in the U.K., reached the fastest pace in two years last quarter and with household spending having appeared to have recovered, and business investment growth and investment intentions picking up , inflation in June remained above the bank's 2 percent target for a second month. I suspect that this rise is intended to try and reduce the inflationary pressures, and of course these should ease if the fuel prices fall back soem time next year,as anticipated.
It's hitting me by about £20 a month as well.
I vaguely remember some "expert" on BBC saying (when the interest rates were less than 4%) that if you look back through interest rate history an average of 5% is needed for a relatively steady economy. Anything substantial either side is usually a reaction to growth or decline. Subsequently if people budgeted for an interest rate of 5% over their mortgages etc then it would all work out ok in the end.
Since August 2004 the rate's either been 4.5 or 4.75% so it looks like it isn't likely to go above 5%. It may reach 5 because it's only one rise to get there.
The stock market has fallen today with banks and other money lenders particularly hard hit by the looks of it.
Probably marked down because of an increased risk of default on repayments by borrowers.
It seems to me that whilst the B of E raises the interest rate, it immediately affects the mortgage borrowers, but it will be months before we poor savers get any benefit. As anskyber says, I can remember paying 14 - 16% interest rates on my mortgage. It made me rapidly pay it off and I haven't had a mortgage for something like 25 - 30 years now. But every time the interest rates go up, it is the savers who fail to get the/any benefits immediately.
Certainly, if as Eckybloke says, savers budgeted that way they would be a long way from getting any true benefits.
These interest rates seem only to work one way initially, despite all the garbage that comes from the banks that says they can give you such "high" interest rates on your savings, until you look at the penalties that are imposed if you happen to take a smidgen out in a month then you are penalised very heavily!
Interest rates for savers have been falling for several months, despite there being no change in the base rate.
As you say, there will be a considerable lag before rates go up again.
It's a damn shame that the Bank didn't raise Base rate to 47.5% (or even more).
I have no mortgage, no borrowings - but fairly substantial savings. ;-))
I'm a IFA - Independent Financial Adviser.
There are some excellent low risk investments available currently giving net returns of 8% + per annum after charges. And these returns are tax-free !
I agree with your sentiment even though my savings are far from `substantial`. But given that interest rates can also fuel inflation I`m not certain your figure is a good one - don`t want to become another Zimbabwe (Rhodesia to those who remember) with inflation in the stratosphere.
Probably the better state would have been for rates to have stabilised at is around 6% several years ago. This would probably have maintained house prices, encouraged saving and curtailed expenditure before it hit the current levels. And because people had not experienced the low rates from the recent past they would be satisfied.
I was advised by an IFA some 8 years ago. The investments then were supposed to be as you suggest. A good low risk investment. The three funds I have with a particular company on the investment markets have now lost 50% and when talking to them and reviewing their website, they still insist that these funds are a good investment and show growth rates which equate to that that I am losing. I call it creative accountancy, because how can these people say they are growing when in point of fact they are losing so much I can't now afford to cash them in. So they use my money to make apparent profits for others whilst it is costing me dearly. Someone should explain to them the meaning of profits from investments!! They, sure as hell, do not know what it means.
On that basis I am with Jackcoms. I managed to organise my life around not having debts, yet I get no apparent benefits from such a regime!
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