Historic Base Rates May Predict Future Increases

by Mark Johnston

Almost every day another report or analyst comes out to either suggest a Bank of England base rate increase is on its way or to defend the current position well into 2011 or even 2012.A little research on the Bank of England’s website will show the base rate changes over the last few years. Looking back its paints a dramatic picture, only a few years ago we had base rates of over 10%. In January 1986 interest rates peaked 12.5%, which is a long way away from the current record low of 0.5%.

After its peak of 12.5%, rates dropped and dropped reaching as low as 7.5% and then raising right up to 15% by the middle of 1989 before they were reduced only to go up again to over 10% in 1992.

It’s startling to see how volatile the rates can be and interesting to think how those historic rates could affect us now if the current base rate started to rise to the same levels.

During the 1990’s the rate started to fall and by the new millennium was around 5.5%. Throughout the new decade the rates fell further to around 3.5% by July 2003. Since then the Bank of England base rate has gone up and down put never higher than its 5.75% high before dropping back to 5% in April 2008 around the same time as the onset of the financial crisis.

The base rate was then drastically reduced to try and stabilise the economy, dropping to an all time low of 0.5% over less than a year. The base rate has stabilised at 0.5% for a number of months amidst plenty of rumors of potential future changes.

Looking back in history can always help us understand the future and the same can be said with the Bank of England base rate. Its well worth looking back at where the rates have been to see what mortgage might be best for us in the future.

If inflation is on the increase there is a good chance that the Bank of England may be forced to increase rates to sure up the British Economy.

Looking back over the last twenty to twenty five years certainly tells us one thing, base rates are the lowest they have ever been. As a result mortgage rates and monthly repayments are probably at their cheapest so its well worth snapping up a great deal.

HSBC are offering a discount mortgage which is below 2%, the new products rate starts at 1.99% which is a 1.95% discount from their standard variable rate for 2 years.

If you are able to pay the mortgage off early the redemption charge is 1% of the amount left outstanding times the number of years left on the mortgage.  The booking fee is £999 but there is no arrangement fee. The maximum loan to value (LTV) is 70% so you would need at least a 30% deposit and you can borrow up to £250,000.

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