Interest rate increases are going to be “more frequent” than expected if the economy operates as the Bank of England is assuming, governor Mark Carney says.
However, the markets are prophesying only one interest rate increase by 2021.
If there is a resolution to the Brexit situation, and inflation and growth continue to rise, then more increases are likely, Mr Carney said.
“If something broadly like this forecast comes to pass… it will require interest rate increases over that period, and it will require more, and more frequent interest rate increases, than the market, currently expects,” Mark Carney continues to advise.
The Bank’s forecasts are formulated on a new trading relationship with the European Union going smoothly and no further shocks caused by the delay in the Brexit process.
What does this mean for mortgages and homeowners?
Moves in interest rates are crucial to millions of people with either tracker or variable mortgages.
Even a small 0.25% rise can add hundreds of pounds to homeowner annual mortgage costs.
Mortgage market experts like David Hollingworth, from L&C Mortgages, state that for those who can afford to buy a home, now is an excellent time to borrow.
According to Hollingworth, lenders are searching for more business and mortgage rates are still very low. “Some lenders are offering five-year fixed deals at below 2%,” he said.
Even borrowers with smaller deposits can find competitive rates of interest, he added. However, he does concede that this cannot continue.
What is the forecast for the housing market then?
The Bank expects UK house prices to fall this year, with property values to drop by 1.25%.
It says some households are likely to have delayed moving house because of Brexit uncertainty.
It also says that affordability has slowed down the market, especially in areas where prices are high, like London and the South East.
According to Which, this slowdown had caused homes to tumble in price, from £232,797 in August 2018 when the market began to recover to as low as £226,234 – the lowest since April last year.
Although growth remains slow, this could open doors for first-time buyers who have been priced out in recently during the boom years.
However, if prices continue to fall, then homeowners are less likely to sell, meaning first-time buyers will still be unable to find a property to buy, despite the lower interest rates.