Stephen Smith, director of housing at Legal & General commented on the expected rate rise next week: “With inflation running away and the property boom ongoing, it is likely that the Bank of England will want to put a cool flannel on the economy’s brow. A rise will turn the screw on borrowers yet rates are still at a relatively low level compared to the 70’s and 80’s. Many people would not be able to cope if they had to deal with rates as high as 16% or 17%, which they were back then.
“May is a fairly common month for changes in the base rate and there have been six increases in the past three decades. Given the need to slow the economy down, it looks like borrowers who have overstretched themselves are going to take a hit.”
Over the past 30 years, there have been many fluctuations in the main Bank of England rate of interest:
If the Base Rate increases next week it will be the third increase in the latest upward trend
The highest rate in the past 30 years was 17% in 1979
The monthly payments on a £100,000 repayment mortgage at 17% would be £1,437
There have been more increases in August than any other month
The Base Rate is currently 5.25%. If it were to increase by 0.25% next week, it would cost an extra £15 a month on a £100,000 repayment mortgage (2).
Stephen Smith added: “People who feel that they are paying too much may have missed the cheapest fixed rate deals but it still might be worth shopping around for a better deal. As one of the largest mortgage distribution networks, people can find a good deal on their mortgage through our business partners, often with exclusive rates that they cannot get anywhere else.”
