With the unemployment rate nearly at the 7 per cent that Mark Carney initially indicated would result in a rise in the base rate, the Bank of England governor has changed the policy.
The Bank’s forward guidance will now be determined by a number of influencers in the economy, not just unemployment, and Carney advised that when rates rise, they will do so “gradually”, hinting that it would only reach 2 per cent by 2017.
The base rate has an influence on mortgage interest rates, so these will remain unchanged for now, thanks to the announcement.
With regards to the impact on the mortgage market, rates will remain unchanged thanks to the announcement.
Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), comments: “Anyone concerned about the impact of rising interest rates on their mortgage repayments can breathe a sigh of relief after Mark Carney’s announcement. Despite the economy turning a corner sooner than expected and unemployment rates approaching their 7 per cent target, there still remains plenty of work to be done before we see a rise in the base rate. It is a sensible move that will help to keep the recovery on track.
“Carney’s message is one of caution: even when the necessary conditions are met and spare capacity in the economy has been reduced, inflation is only expected to rise very slowly. This means people are unlikely to see much impact on their mortgage repayments for some years to come, which may impact decisions to opt for short- or long-term fixed deals. When assessing a client’s affordability, lenders will always take possible rate rises into consideration, so consumers can rest easy knowing their mortgage will not leave them overstretched.”
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