Householders in Ayrshire considering their options may decide extending their existing home is a better idea than upsizing if mortgage interest rates are going to rise in the next few months.
The prospect of the cost of borrowing increasing has been flagged up by businesses and City traders, despite the most recent Bank of England Monetary Policy Committee (MPC) meeting voting unanimously to maintain the current 0.1 per cent rate.
Although inflation is above the two per cent target, minutes of the September meeting show the MPC expected it to reach four per cent in the last quarter of this year on the back of higher energy and household goods prices, but then fall back in 2022.
Despite this, experts do still anticipate an increase soon. Laith Khalaf, the head of investment analysis at AJ Bell, said: “The market has been rapidly pricing in an interest rate rise in recent weeks, with the chances of a hike this year now standing at two in three.”
While noting that this seems to fly in the face of the sentiment arising from the September decision, he said the country “now looks firmly on the path to higher interest rates,” with the key question being how fast the Bank proceeds.
All this would push up mortgage rates for anyone without a fixed deal, meaning it could be a smart option to contact architects in Ayr to start designing an extension instead.
The base rate has been extremely low in historic terms for many years. In July 2007 it was at 5.75 per cent, but as the credit crunch and financial crisis unfolded it was cut eight times to eventually reach a then record low of 0.5 per cent in March 2009. Since then it has never been higher than 0.75 per cent and the current rate was implemented last year in response to the economic shock of Covid.
All this means that if interest rates gradually return towards more historically normal rates, an age of cheap mortgage borrowing will be over.