Bank of England Maintains Interest Rates

BoE Interest Rates

The Bank of England has announced that it is keeping interest rates at 0.5%, but hinted at increasing the base rate soon.

The BBC‘s Kamal Ahmed has warned that this means the cost of a mortgage is likely to rise.

Ben Morris, also of the BBC had this to say:

Bank policymakers voted unanimously to keep interest rates on hold at 0.5% at their latest meeting. However, they said rates would need to rise “earlier” and by a “somewhat greater extent” than they thought at their last review in November. Economists think the next rate rise could come as soon as May.

The Financial Times called the report “hawkish“, but highlighted that any possible increase rates are being looked at in order to “to damp the effects of a stronger global economy on UK inflation.”

Leah Miller’s article for Mortgage Strategy said: “it’s looking like it won’t be long before mortgage rates begin to climb.

Do I need to factor in a Bank of England rate increase in May 2018?

In summary, analysts think a rise in May in the Bank of England’s base rate from 0.5% to 0.75% is likely, with another one expected to follow at some stage after that. So what would a rise mean for the 9.2 million people in the UK mortgages?

People on variable rate mortgage would be most affected

The four million people with mortgages on a standard variable rate or a tracker rate would be most affected by a rate increase in May, as their monthly payments would increase. Nationwide has done its sums. If you have a £200,000 mortgage, a 0.25% rate rise would mean paying more, approximately £300 per year or £25 per month.

nationwide mortgages bs

People on fixed rate mortgages

According to the BBC half of all outstanding loans are on fixed rates, equating to about 4.5 million households. Most people with new mortgage loans (94%) take on fixed interest rates, normally for 2 or 5 years. These borrowers are on a fixed rate so would not see a rise, even in May. “However, when such borrowers reach the end of their term, they may find they have to make higher monthly payments. That said, they could – depending on when they took out their loan – end up on a cheaper deal. Lenders offering fixed rates tend to be especially competitive.”

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