Loans. Mortgages. Credit cards. Financial experts predict 0.5 interest rise by end of year

Several factors are contributing to the general belief among financial experts that interest rates will rise this year again – probably by 0.5. It’s expected that the first rise will take place in August, of 0.25, and then another rise of the same amount will occur later in the autumn. It’s not just speculation – although of course it is not fact yet, the mortgage lenders seem to agree and have already started putting up their rates. At the moment, the cheapest deal you’ll be able to get on a 2 year fixed is 4.15, and with a 3 year fixed, 4.49. Fortunately the credit card and loan providers are not so quick off the mark. They usually wait until an announcement has been made before they start making any changes. They will react when the time comes.This may come as a surprise to some as only a few months ago, financial experts were predicting that interest rates would be going down again before they went up. So what has been happening to alter the expected course of events? We explain here. Inflation is currently under pressure from a number of market forces in the UK’s economy. Inflation generally increases by around 2 a year which is the government’s target, but one thing that is making that hard to achieve is the ever rising cost of energy. Energy prices are at a high and despite the extra strain being put on UK citizens by fuel costs and energy bills, we are still buying more cars (from January to March 7 more new cars were registered than in the same timeframe in the previous year), and industry orders for new cars rose by 13 over the same timeframe. So the new car business is showing no signs of slowing down, in fact, it is speeding up. America is in a similar situation, despite the controversial rise in energy prices, the economy is still going strong and confidence in general is high. Export rates are increasing too – by 20, and so are import rates. The economy is looking extremely healthy, and the recent quarterly survey that looks at all aspects of the economy had only good news to report. So now to the housing market, where we see that prices are still looking steady, in fact they are still increasing. Existing homeowners will be pleased that the market is still buoyant, for the people that still can’t afford to get their first house, it’s more bad news – they are probably wondering if the housing boom will ever end. According to all the statistics, the boom is still underway. Halifax reported an average rise of 1.6 according to its sales. Nationwide had even bigger news to report, an average rise of 2.3. It looks like the boom is actually happening at the higher end of market, which is why average figures are so high. Rightmove is the big property website that estate agents all use, and their figures also show that house prices are still on the up – in January they rose by 2.7; in February they rose by 0.9; and in March they rose by 1.1. The average house price now stands at a record high of £205,674.Clearly, even a small rise in interest rates will stop more cautious investors from purchasing a house, hoping that higher interest rates will signify lower house prices. Many would be homebuyers will be waiting for a price crash, so the housing market will no doubt suffer as a result. It is unlikely that the housing market will crash as far as we are concerned. 18 months ago interest rates went up but the effect on the housing market was not catastrophic by any stretch of the imagination. Some areas may suffer more than others from a sluggish market, especially areas where there are already a lot of properties on the market. It will probably mean people will start dropping their prices a bit, so first time buyers can get a foot in the door at last. Currently, house sales go through at 95 of the original asking price. We predict that the figure will fall off to 90 as the market improves for buyers, and as a result, people will start to have lower expectations on asking prices. There will be no crash in the housing market, but things should get a little better for homebuyers.

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