Good news for mortgage customers as interest rates look set to stay low

Cheer for homeowners

Cheer for homeowners

Homeowners will be pleased that the Bank of England’s monetary committee look set to keep interest rates at their record low for at least another month.

With interest rates at a record low of 0.5%, they haven’t changed since March 2009. Homeowners have benefitted from paying lower repayments on mortgages that track the base rate.

With only one member of the monetary committee voting to increase the rate at the past few months’s meetings, economists expect rates to stay low for a little while longer yet.

The Bank of England will increase or decrease interest rates to control inflation, which occurs when the amount of money spent in the country grows faster than the volume of output produced. The rate at which the bank lends money then directly affects the rate at which commercial banks and building societies also lend money, and will in turn help to reduce or increase output to control the economy.

With inflation currently running at a four month high of 3.2%, and above target for most of the year, the Bank of England would logically increase interest rates to control this. Unfortunately such an increase would also increase mortgage repayments for millions, and leave the public with less money to spend, which in turn could harm the country’s economic recovery.

Whilst the economy’s recovery is currently progressing at nearly twice the rate expected the New Year’s VAT increase and public sector job cuts are expected to slow this down so the bank continue to be cautious about increasing rates.

As a result economists now expect the base rate to rise by only 0.25% by the end of next year, and by no more than a further .75% by the middle of 2012. This should provide cheer to homeowners on tracker mortgages in the short term, but the future remains uncertain, especially as interest rates increase will affect those without fixed rate mortgages immediately.

Leave your comment

  • (not published)