Interest rates could keep on rising

Homeowners and potential property purchasers in the UK have had to face the financial implications of four interest rate rises enforced by the Bank of England in the past nine months. In August last year the Bank of England raised rates to 4.75 % from 4.5 %, and in November the rates went up again by another 0.25 % to 5 %. Another 0.25 % rise in January of this year saw the base rate go up to 5.25 %. And the latest rise was for yet another 0.25 %, leaving the rate standing at 5.5 %. Experts predict that there will be a further rise of at least 0.25 % in the summer.

However, although the rises that have been applied over the past nine months have been for 0.25 % each time, some think that a fairly steep rise is going to have to be enforced at some point in order to bring the rate of inflation under control. The government’s target for inflation is 2 %, but this has been broken and exceed by over fifty percent. Experts, including a professional that has worked as an advisor for the treasury, think that the interest rate may have to rise as high as 7.5 % or beyond in order for the rate of inflation to come down.

One official stated: 'Inflation is back and it's going to get to 4% by the middle of next year. It's not as bad as earlier cycles, but it's nevertheless bad and it's going to end the usual way. Rates will have to go to 6 to 6.5%, may have to reach 7.5%.' A mortgage broker added: 'People who are buying a home have got to look at the size of their mortgage from the point of view of interest rates probably going up again. Think about affordability of the mortgage not just today, but in the near future after one or even two more interest rate rises.'