What will happen to the interest base rate this year?

Every month the Bank of England’s Monetary Policy Committee (MPC) meets to decide how to move the interest base rate. Each month, that decision could impact on millions of homeowners with mortgages on a variable rate. If the base rate increases, then their monthly mortgage repayments will also increase.

Our recent article talked about how Northern Rock has moved into profit this year – but this is deemed primarily to be because the interest base rate is so low and the borrowers can afford the repayments. Many of the Northern Rock borrowers have a high loan to value ratio and so are deemed more vulnerable to base rate changes than many others. Many of these borrowers are also unable to move to another mortgage provider, because such a high loan to value will no longer will no longer be deemed a reasonable risk now that lending criteria has tightened following the credit crisis.

Currently, the base rate is at a record low of 0.5% and experts are divided on what will happen to it when it moves. For example, the Centre for Economics and Business Research has stated that its official opinion is rates will remain low

“at least to the end of 2011 and probably beyond”

The forecasting group for the Ernst & Young Item Club, as quoted in Think Money, believe the 0.5% will stay

“for much longer than the Office for Budget Responsibility and the markets have anticipated”

However, perhaps we should be concerned more by the opinion of a former deputy Bank of England Governor, Sir John Gieve, who used to be involved in these decisions at the Bank of England itself. He stated:

“I am expecting a recovery – when that is strongly established I`d expect rates to start rising faster than the market currently expects. I wouldn`t be at all surprised to see interest rates at 2.5% a year from now.”

It is difficult for anyone to predict what will happen. Those taking their CeMAP courses will learn all about the role of the Bank of England, the impact of changes to the base rate and how to help borrowers choose the best mortgage deal for their circumstances.



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