We are delighted to see the Bank of England signal rates will not rise until next year. With a rapidly improving economy the Bank was expected to act before the end of this year. Base rate has been locked at a rock bottom record low of 0.5 percent for more than five years.
Millions of mortgage holders not on fixed rate deals are waiting for the Bank to increase rates and see their costs rise. Bank of England governor Mark Carney arrived in June last year signalling low rates for a long time to come. But with unemployment continuing it's dramatic fall, he had changed his tune
The financial markets had begun to expect the first 0.25 percent rise this year.
However, Carney has again reinforced his dovish ways, to the delight if tracker mortgage holders.
In the Bank's inflation report, published this week, Carney says there are still big obstacles to rising rates.
Chiefly wages dropped 0.2 percent year on year in April.
Carney believes this shows falling unemployment is being paid for with lower wages.
This means that the economy remains fragile and individuals are still financial uncertain.
We wholeheartedly agree with this economic analysis.
We know borrowers would struggle with rapid rate rises.
Nobody wants to see a wage of repossessions as seen in the early 1990s when rates shot up.
We also agree that when rates are ready to rise they do so gradually so as not to shock people.
Prepare
For individual borrowers we recommend strongly to check your financial situation.
Rates will rise eventually so do not bury your head in the sand.
All borrowers should speak to their financial adviser or mortgage broker to do a quick financial health check.
What would happen if rates ticketed to 3 percent in the next two years?
Could you afford it? What would you cut back on?
Perhaps you need to downsize or remortgage.
Alternatively you could switch now to a fixed rate deal that will bring greater certainty to you payments.
There has always been a trade off between certainty and risk when considering fixed or trackers.
Ultimately it depends on your circumstances so speak to your adviser and draw up a plan.
In addition you should always contact your bank or building society if running into difficulties.
Yes, they want their money back but they will be able to help you.
All financially regulated companies are legally obliged to treat customers fairly so this should offer you sons protection.
Ultimately what Carney and the Bank of England do over the next year could directly affect you.
It us worth keeping up to date with developments and keeping and check on your own circumstances.
