Prepare for higher interest rates now

Against most predictions it seems that house prices have continued to rise strongly in June. The Nationwide has announced that prices rose by just over 1 percent in June. This must put pressure on the Bank of England to raise interest rates.

During their meeting in June, the Bank of England's Monetary Policy Committee (MPC) voted narrowly to maintain rates at 5.5pc, but it is now almost certain that they will raise rates when they meet again next week.

House prices are still rising

Nationwide's lending figures show that the average home now costs £184,070 which is £18,000 more than this time next year, despite a full one percent increase in interest rates.

The problem for the Bank of England is that Junes' one percent rise in house prices is double that for May, so the evidence points to previous rate rises being shrugged off by house buyers – more pressure must be applied by the Bank and rates must rise further.

Is six percent possible?

The MPC have never put rates up more than 0.25pc at a time, however the Nationwide is predicting that rates will rise to six percent soon and this is supported by half the City economists who think that rates will hit 6pc by the end of the year.

It is unlikely that the Bank will raise rates to 6 percent next week, but at least another 0.25pc is now imminent.

Sensible borrowing

The days of very low interest rates are probably behind us as rates have risen in many countries across the world. Inflation worldwide is increasing and interest rates are being used by many countries to keep rising costs under control.

The interest rates that we are currently seeing are probably as low as they'll be for quite some time – possibly years, so it is sensible to control your borrowing. Even fixed rate loan terms come to an end at some point.

It is not just borrowing that has to be controlled. The recent problems in the sub prime mortgage market in the USA show that a trend of rising interest rates must be met with sensible lending decisions to prevent melt down from high numbers of loan defaulters.

So the message is that if you have to borrow then try and factor in at least 0.5pc increases in interest rates into your affordability calculations. You may be glad that you did in the months to come.

Mortgage rates changing rapidly

Banks and Building Societies know that interest rates are rising again and are changing their loan and mortgage rates almost on a daily basis at the moment and are discontinuing many fixed rate and discounted mortgage products.

With so many changes to mortgages occurring even before next Thursdays MPC meeting, you should be striving to receive any firm mortgage offers as soon as possible.

Once the Banks have issued a firm mortgage offer then they are bound to provide that product to you, no matter what happens to interest rates.

To help find the best mortgage deals in this rapidly changing market, consider using an independent mortgage broker and contact them soon to see what they can do for you now.

Click here to contact the Money High Street mortgage broker partner