Interest rate rises can be stressful if you have a loan with a variable interest rate or if you are thinking of taking one out. It can be tempting to try to find a way of predicting when the rates will rise, so that you can decide when the best time to take out a loan might be and to be prepared if you already have a loan. However, what are the ways to predict it?
What are rates now?
Knowing what rates are at the moment is a good place to start. The rates tend to have a bigger chance of going up if they are low, especially if they are very low and they will have a bigger chance of falling if they are high. This is because they tend to fluctuate within a certain amount – historically between about five and ten percent. They have gone historically low and high at times though so they do not always behave as expected. This is the main challenge with trying to make predictions. There are so many factors that might influence whether they will change or not that it can be very hard.
Have rates changed lately?
It can be worth looking at whether rates have changed lately. The Bank of England keeps records of this and you can take a look at how often rates change and by how much. This might help you to predict when it is likely that rates might change. They tend not to change in quick succession, but this has happened at times. If you look for patterns in the figures though it might help you predict more accurately.
How are the panel voting?
There is a panel at the Bank of England that vote on rate changes. The results are published monthly and you will be able to look at them to see how many voted in favour of a rate change and in what direction. This might give you an indication of whether there is likely to be a change as if no one voted for one in the previous month it would seem unlikely that they would all suddenly vote in favour of a change the following month.
What is inflation doing and likely to do?
The decision as to whether to change the interest rates is mainly based on inflation. The aim of the Bank of England is to keep inflation as near to 2% as possible by adjusting interest rates and using other methods. This means that if you keep a check on inflation then you might have an idea as to whether the rates might be likely to be changed. However, inflation can be hard to predict, so until the figures actually come out you will not know.
As you can see there are quite a few things that you can use as an indicator. You could also look at the opinions of economists who might like to try to predict what might happen in the future with regards to interest rates. However, it is very hard to predict in the long term as there are many factors that might be an influence such as things going on abroad as well as in this country. A sudden stock market crash or things like this are impossible for anyone to predict.
It can be much easier to just assume that the rates might go up and then prepare for that. Then you will be ready in case that does happen. It can be annoying that your loan gets dearer, but this is a risk that you will always have to take. It may get cheaper rather than dearer as well, so it could end up that you will be paying less for the loan. If you do want to protect yourself against rate changes then you can get a fixed rate loan. This guarantees that the rate will not change. This can be good as you will always know exactly how much you will be paying, but it can work out dearer if the rates fall or stay the same as the rates tend to start out higher than the variable rate. You will therefore have to decide whether you would rather pay the same amount and risk that you lose out or just pay a variable rate so you can take advantage of rate reductions but you risk having to pay more if the rates rise. It is only worth taking this risk if you are confident that you will be able to afford to repay the loan if the rates are higher. Make sure that you take some time to calculate how much you can afford now and what you might be able to afford in the future so that you can be confident that you will be able to manage your finances.