Reasons Why UK Mortgage Rates Could Go Up in 2015
As the bank rate continues standing at a record low, fixed rate mortgages have remained cheaper, including the fact that cheaper funding is accessible to lenders on wholesale markets. In 2013, most analysts believed the rates could not continue falling any longer but 2014 has utterly proved each of them wrong.
Currently, you do not need to convince many on this fact. There are all sorts of signs pointing to the rates remaining as they have been in 2015 as inflation remains down, growth of the wage remains unassuming and lenders are always looking forward to attracting new business. A good number of brokers in fact expect the rates to continue dipping down further due to this overriding competition. Nonetheless, the rates are not expected to remain low forever with a number of outside factors expected to start pushing them up.
If there is a rise in inflation, borrowers need to expect the rates of mortgage to also follow. Fixes on the longer term have always reflected on Bank Rate market expectation and if lenders have reasons to believe interest rates might rise, it is worth expecting fixed rates on the longer term to push up. If mortgage rates are to keep rising ion 2015, wholesale funding or Bank Rate conditions might have to change. This could be triggered by a number of factors.
Rising Bank rate
One thing that is clear is that the market does not expect the Bank Rate to be pushed up by the Bank of England any time soon with some people thinking this could extend to 2016. Nonetheless, market sentiments can change very fast. For instance in summer the markets had their view reversed and rates did fall a lot to the new lows seen currently.
Inflation might be slightly below the two percent target and could continue falling much lower, perhaps less than one percent in December and could continue remaining low for a long time. In case this will change if a rise is predicted by the market, it would be seen in increased gilt yields as well as higher swapping rates, something that could push the fixed rate mortgage costs up.
World financial woes
Some analyst believe the main risk that could make mortgage rates to rise is some unexpected world financial issue, making the markets to seize up as has happened before after the infamous Lehman collapse of 2008. As a result, wholesale funds would be lacking, forcing lenders to raise their rates while tightening their criteria in the process, lowering the loan numbers approved. In fact, analysts believe the risk of financial problems globally is much higher as observed by the dipping Russian rouble that continued to be on a free fall in December.
In case lenders are forced by regulators to put up with with more or new stringent rules the costs can only go up, something that impacts rates right away. For instance, the changes expected on the funds lenders should have in reserve or capital adequacy could keep on raising their cost and rates can only rise.
Analysts believe if the market continues to look uncertain due to diverse factors such as falling crude oil prices, eurozone crisis and UK general election things could really change in 2015. It might end up raising the wholesale funding cost, resulting in increased mortgage rates.