Mortgage blog: Rate rise unlikely to happen this year

Posted 2 September 2014

Mortgage payments for millions of homeowners are unlikely to rise in 2014 with the first base rate rise now expected in early 2015. That’s the view of experts and the financial markets following the Bank of England’s latest inflation report.

The base rate hasn’t been increased since 2007 but homeowners on variable rate deals can expect to see interest rates rise sometime in early 2015. Interest rates are then set to creep up over the next three to five years.

First interest rate rise now expected in February or March 2015

The Bank of England’s latest Inflation Report says that it expects interest rates to rise in line with market expectations – putting the bank rate at about 0.75% in six months’ time. Rates are then expected to rise at a slow pace to reach around 2.25% in three years time and 2.5% in five years’ time.

The most recent financial data led the Bank of England to say that it is expecting slower rises in wages. This means that there will be less pressure on salaries and consequently less inflationary pressure and these factors reduce the need for economy-cooling rate rises.

Experts and the financial markets now expect the first increase in the base rate to come in February or March 2015. This is earlier than expected in the spring of 2014 when it was predicted that rates would rise for the first time in the summer of 2015.

However, it is worth remembering, as the Daily Mail reports, that “economists and markets have a woeful record of predicting rates”.

What does a potential rate rise in early 2015 mean for you?

If you are on a tracker or variable-rate mortgage then you can expect your repayments to rise as and when the base rate finally increases. A quarter point rise in interest rates will add around £32 per month to the cost of a £150,000 interest-only mortgage and around £20 per month to the cost of a 20-year repayment mortgage of the same amount.

If you are concerned about rising interest rates you could consider switching to a fixed rate deal. Keith Osborne, editor of, says:  “Fixed rates remain at historically low levels and will give you protection against rises in rates. At present, around nine in ten mortgages are taken out on a fixed rate basis. You can either consider remortgaging to another bank or building society for a better deal or you may also find that your existing lender has a range of fixed-rate products especially for existing borrowers.”

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