The UK’s economic ties with the US and its latest decision to raise rates last week could lift swap rates at some point, which are linked to mortgage rates, said Moneyfacts.co.uk.
Charlotte Nelson, finance expert at Moneyfacts.co.uk, said the comparison site has already seen an increase in rates but that it is ‘nothing to worry about’ at around 0.0001%.
However, Nelson said rates could go up overnight if Mark Carney, governor of the Bank of England, makes a speech indicating a potential rise in the new year, or based on the effect the Federal Reserve rise has on the British economy.
Stuart Gregory, managing director at Lentune Mortgage Consultancy, said he believes the base rate rise will happen in mid-2016 but that he expects the Bank of England to stretch a rise out as long as possible.
Instead, he thinks borrower sentiment, not Base Rate, is the most likely change next year.
“At the moment, when there has been a lot of yo-yoing in the messages coming out of the Bank of England, it has become very confusing for borrowers.”
He said the public has stopped believing a rate rise could be imminent as the Bank of England has indicated rate rises only to put them off again many times in the recent past.
“The Bank of England has gone wrong in pinpointing estimated dates or quarters of the year where rates could rise. So far it has been misleading. Mark Carney is like the boy who cried wolf – he has talked about it so many times and backed down that people have stopped believing him when he does say it.”
Gregory said that it is less about the figure of by how much the base rate does rise, and more about changing people’s perceptions.
“At the moment, people don’t believe there is a threat yet, and that’s why the remortgaging market hasn’t taken off. In order for them to change their plans, something needs to happen where they think now is the time to look at things.”
Ray Boulger, senior technical manager at John Charcol, said the most important aspect in terms of potential mortgage rate rises is not when the bank rate does rise – but when the market expects it to.
He added that if something happens to change that view, swap rates will start picking up, which will have an impact well in advance of a bank rate rise.
Boulger said the biggest unknown factor which could change the timing is the oil price, which is at its lowest point since 2004, which could push inflation back into negative territory.
He also believes a rate increase is unlikely for at least another year or until 2017.
Both Gregory and Boulger said they are not expecting the Bank Base Rate to increase by more than 0.25% when it does happen.