How low will rates go?
November 9, 2008
Interest rates have been causing problems for many homeowners and would be property purchasers over the past couple of years. Between August 2006 and July 2007 the base rate was increased no less than five times, and with each rise being 0.25% this took the base rate from 4.5% to 5.75%. For many homeowners with variable rate mortgages this caused huge problems, as their monthly mortgage repayments rocketed by hundreds of pounds a month in some cases. Those that were hoping to get onto the property ladder found themselves priced out of the market because they could not afford to take out a mortgage at such a high rate of interest.
In December of 2007, after stagnating at 5.75% for a number of months, the base rate was finally cut by 0.25% amidst fears over the state of the economy and the low level of consumer confidence. Interest rates fell further in February and April of this year, each time by 0.25% taking the base rate to 5%. However, whilst further interest rate cuts had been widely predicted by many industry officials inflation started to spiral out of control and this resulted in the base rate remaining at 5% for another six months.
The reason why the base rate was left at 5% despite the slowing economy was because the rate of inflation soared past the government’s 2% target. This made it very difficult for the Monetary Policy Committee and the Bank of England to consider cutting rates, as inflation levels had to also be taken into account. In September the rate of inflation reached 5.2%, its highest level in years. However, industry officials now think that inflation has peaked and will now start to fall.
With this in mind it is widely anticipated that interest rates will be cut further over the coming twelve months, and some think that the base rate could fall as low as 2% by next autumn, as the government tries to boost the economy, restore consumer confidence, and reduce the financial strain for homeowners. The government has already cut the interest rate by 0.5% earlier in October in a surprise move that came a full day ahead of the MPC meeting where the rate of interest is normally determined.
If the base rate does fall to 2% then many struggling homeowners who are on variable rate mortgages could at last see their mortgage repayments fall by a significant levels, with some seeing their monthly repayments fall by hundreds of pounds. However, some see the rate cuts as too little too late.
One official said: ‘In a sense, it will be too little, too late because it will not stop the economy from heading into a pretty deep recession. ‘They wanted a slowdown in the economy but it is becoming clear that the downturn is deeper than they intended.’
- Nationwide cuts interest rates for some borrowers Consumers in the UK have been relieved to see that a number of lenders have reduced the interest rates on their mortgage products slightly after swap rates, which are indicative of mortgage interest rates, fell
- Bank of England keeps interest rates on hold Following this month's Monetary Policy Committee meeting the Bank of England has announced that interest rated for October will remain unchanged at 5.75%. This was widely expected by most economists and analysts, although the decision
- Lenders cut rates but only well off will benefit from them Over recent weeks a number of lenders have reduced the interest rates on some of their mortgage products, and this has been the result of a drop in swap rates, which are indicative of mortgage
- Bank of England keeps interest rates on hold Following this month's Monetary Policy Committee meeting the Bank of England has announced that interest rated for October 2007 will remain unchanged at 5.75%. This was widely expected by most economists and analysts, although the
- Call to Bank of England to cut interest rates A number of industry professionals and agencies have been calling upon the Bank of England to cut interest rates to benefit the economy, according to recent reports. Since August 2006 interest rates in the UK
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