Interest rates are one of the major factors that influence the economy. In the case of most of us, it is often their impact on the housing market that causes the most interest.
The fifth consecutive rise in the Bank of England’s base rate left interest rates standing at 5.75% by the summer of 2007. With signs of the housing market slowing, many home owners were expectant of a drop in interest rates.
Many saw interest rates as being relatively high and this was certainly the case when compared to a short period in the months before 2007. Less than a year earlier interest rates had stood at just 4.5%.
But were interest rates really all that high? Historical evidence suggests that we’d rarely had it so good. Back in 1989, with the housing market in trouble, the interest rate stood at a seemingly incredible 15%, with mortgage rates often being above that level.
In that context, the interest rates of 2007 seem pretty low.
Big drops in the base rate weren’t seen until 1992 and 1993. At the beginning of 1992 the UK base rate stood at some 10.5%. By the end of 1993 it had fallen to 5.5%.
That dramatic drop was seen in some exceptional circumstance but it should stand as a warning to many home owners. Interest rates can move quickly, leading to significant changes in our mortgage repayments.
Interest rates now stand at their highest level in six years and yet we have seen that they are still relatively low by historic levels. We’re not talking about ancient history here either – we’re looking at levels within our lifetimes for most of us.
The future of interest rates will be interesting to watch but it’s importance that we don’t base our financial decisions on assumptions about the future direction of rates.
History tells us that interest rates can vary rapidly.