Carney signals 0.5% interest rate for foreseeable future

We are pleased to report that the Bank of England appears to have signalled that the UK base rate is set to remain at 0.5 per cent for some time, much  to the delight of mortgage holders.
New Bank of England governor Mark Carney has calmed markets at his first meeting with rate-setting the monetary policy committee.

Stock markets rose on the back of a signal that mortgage interest rates are not expected to rise for the foreseeable future.

The latest signal follows calls from previous governor Lord Mervyn King that interest rate rises would be “premature”.The news will comfort borrowers sitting on ultra-low standard variable rate mortgages linked to the 0.5% base rate.

Financial markets have been volatile recently after the US Federal reserve signalled it was about to withdraw its support for the economy on the back of strong US growth expectations.

However, all the signs are that the UK is not about to follow its lead just yet and mortgage rates remain at super-low levels.

Long-tern rates

In addition new governor Carney is planning to make changes to the way interest rates are set in the UK to give people more time to plan. In August he will set out plans to set interest rates over the long-term and give borrowers better indications of where rates are heading.

Today was the first step but in the future it will become a more formal process so borrowers will know rates will stay at low levels until, say, the end of the year.

It would allow mortgage holders on SVRs not to have to wait nervously for the results of the monetary policy committee meeting every month.

Although rates have stayed at 0.5 per cent, in normal times there can be more fluctuations which can hut people's finances unexpectedly.

Long-term setting would create more certainty and has the support of the UK Government including chancellor George Osborne.

Funding for lending

As well as low base rate the Government has kept fixed rate mortgage rates low with an ambitious scheme offering cheap loans to banks.

It works by the Bank of England giving banks cheap money which then must be passed on to borrowers in the form of business or mortgage lending.

This scheme has been the driving force behind a major collapse in the cost of  fixed rate mortgages this year.

While some mortgage rates have been dropped or increased recently in the face of global economic uncertainty they remain at incredibly low levels. Borrowers are enjoying an era of low mortgage rates with unprecedented Government support from low rates and lending schemes.

There may be shocks ahead as many get used to the low rate environment and fail to plan for a more expensive future.

The Bank of England estimates 9 per cent of all mortgage borrowers would be forced to spend less or earn more if rates rose 1 per cent. If rates rose 2 per cent then one in five borrowers would be forced to work longer or cut their spending.

The impact of rate rises will be enormous and hit mortgage borrowers hard in the pocket but for the time being they can enjoy the extra cash to spend on paying down the mortgage, saving or spending.

It also means it is a great time to remortgage or get your foot on the housing ladder so speak to a broker and find out your options.