Stand by for higher interest rates – but what will this do to house prices?

No one can know the pace at which interest rates will rise or how high they will go but it is easy to predict that the cost of servicing the national debt will climb, writes Hamish McRae

Sunday 14 March 2021 21:30
<p>One lender has just launched 40-year mortgages starting at 2.99 per cent</p>

One lender has just launched 40-year mortgages starting at 2.99 per cent

Global interest rates are climbing and they have a long way further to go. The only questions are how quickly they will rise and what this will mean for all of us around the world – for our mortgages, our taxes, our savings and so on.

If that sounds contentious, consider this. The world’s central banks can control short-term rates and at the moment they are nailing them down to the floor. The Bank of England’s Monetary Policy Committee meets this week and will certainly confirm that the Bank of England rate remains at 0.1 per cent. The US Federal Reserve also meets this week and will hold its Fed funds rate at 0.1 per cent. Last week, the European Central Bank kept its deposit rate at minus 0.5 per cent.  

But what they can’t do is control long-term rates. They can influence them but not control them. On Friday, the 10-year interest rate on UK gilts was 0.825 per cent, which is very low by historical standards but is up from 0.2 per cent on 31 December. The equivalent rate for US treasuries was 1.625 per cent, up from 0.92 per cent at the end of last year. And for 10-year German bonds, the rate on Friday was minus 0.3 per cent against minus 0.57 per cent on 31 December. Yes, you still have to pay money to the German government for the pleasure of lending to it; but not as much as you had to pay a few weeks ago.

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