Bank of England raises interest rates to 0.5 per cent
The Bank of England’s decision to raise interest rates by a quarter point was widely expected, whether it should have actually happened or not, as the rate setters managed to back themselves into a corner. With five-year Swap rates at 1 per cent, the market forecasts the average position for base rate over the next five years to be at that level, so borrowers do not need to panic, as any rate rises are likely to be slow and moderate. However, there is a whole generation of borrowers who have never known a rate rise so psychologically it could have much more of an impact for them.
The increase has already been factored into mortgage pricing, with most lenders hiking the cost of their fixed-rate deals over the past couple of weeks. However, we don’t believe it is the end of cheap mortgages with Nationwide actually cutting its fixed rates this week, illustrating the ultra-competitiveness of the market. Some lenders may well be prepared to absorb rate increases into their margins, as they are still chasing business. The plethora of new lenders has also led to increased competition in the mortgage market, which is good news for borrowers. As always, independent advice is crucial, particularly if you are on a variable-rate deal and worried about rates rising further.