The Bank of England Governor Mark Carney has confirmed that although unemployment is fast heading towards its trigger point of 7%, lack of growth in other sectors of the economy means the Bank of England base rate is unlikely to rise when it finally does hit 7%.
He did say that when rates do eventually start to increase, the base rate will only rise gradually and even when the economy returns to normal it is likely to be substantially below 5%.
Mr Carney said that the recovery means that by around 2017, the bank rate will settle somewhere between 2 and 3%.
Social media, the press and other market commentators immediately picked up the headline of “Rates rising 6 fold in 3 years,” but as I pointed out to the younger members of staff at Mortgage Required (some of whom were still at school 5 years ago when rates fell to their all-time low!) 6 x ½% is still only 3%!
Anyone who had a mortgage in the early 90's will remember the pain of interest rates around 15%, so I am sure they will eat 3% up for breakfast!
From next month, new regulations will mean that lenders will need to factor in rises in interest rates when they agree new applications, so in theory a 6 fold rate increase should not really hurt anyone.
His comments will no doubt mean mortgage borrowers will edge towards fixed rates, which are still extremely competitive. It may even wake up borrowers on “lifetime trackers” who have been paying naught point didly squat in interest for 5 years. Be warned, 0.5% will not last forever!
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