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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

15 Jun 2014

Finally interest rates set to rise

Increasingly, even the most pessimistic observers are finding that the main economic indicators are signalling a strong recovery from the financial crisis some six or seven years later...

I am sure there will be politicians queuing up to take the credit just as there were those ready to apportion blame, but these things are notoriously cyclical - we always knew it would eventually resolve more or less regardless of the economic action taken by the various politicians.
The good news also comes along with the 'bad' news that interest rates are set to rise...and fairly soon. Again, we always knew this would be the case, but for those of us who have benefited from low mortgage rates, the reality of the end of the gravy train is just around the corner.
No definite dates as yet, but indications are that the end of this year or possibly early next year will bring a tentative rise in the current 0.5% base rate currently applied in the UK. I expect that it will be several years before the base rate reaches anything like it was before the dramatic drop five years ago.
Of course, I am calling it bad news as a mortgage-payer, but a net investor will be thankful that there is a prospect of getting a better return on investments at long last - also as my mortgage has an element of endowment, there is actually a kind of 'leveling out' of the good news versus bad news scenario even for me.
There is also speculation that this will slow down the property price rises that are starting to kick in particularly in London where housing is so tight, and seeing as it was in part, property prices that led to the original recession, this is possibly no bad thing...

Two basic questions remain then:

'When?' and 'How much?' there is a suggestion in the media that the rise will come before the general election in May 2015, maybe even well before. As for the new level, it will probably be set at 0.75% or possibly 1.0%. A full 1.0% would be more of a bold statement of intent and could be seen as a level that could be maintained longer-term, a mere 0.75% might leave the markets nervous wondering how long before the next 0.25% is added...
For those who have recently bought property on low interest mortgages, a rise in rates will be a new and unwelcome experience - although such a small change in rates is surely not likely to leave home owners without the means to pay their mortgages.
Personally I am currently still overpaying my mortgage, so for me it will simply be a matter of reducing my over-payment so that the overall outgoings remain the same.

Related posts:

Feb 2009 - imminent drop in interest rates
Mar 2009 - base rate set at 0.5%

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