Interest rates will remain at their low of 0.1% after the Bank of England decided to keep its Base Rate unchanged.
The decision to maintain rates should mean mortgage borrowers will benefit from lower rates for a bit longer.
However, it’s not such good news for savers meaning anyone using a high street savings account to build their deposits may want to look for other options in order to benefit from the best returns.
The Bank of England decided to set the rate at its low of 0.1% at the start of the pandemic as part of its attempts to help the economic recovery.
Since then borrowing costs have fallen, and – more recently – a mortgage price war has begun with some lenders offering interest rates below 1% for borrowers with higher equity or deposits.
Simon Gammon, managing partner at Knight Frank Finance, said he thought it was a good time to be a borrower.
“The mortgage market is buoyant despite the ending of the stamp duty exemption, with mortgage approvals remaining high,” he said.
“In addition, competition between lenders is intensifying as confidence grows in the UK economy and housing market.
“This means more choice for those looking to borrow. For the first time my career, I’ve seen five-year fixed rates drop below 1% – an unprecedented situation that means there really have been few better times to borrow.”
A rise is on the cards
However, he joined many other pundits in forecasting the 0.1% low won’t last as the Bank of England is likely to come under increasing pressure to raise the base rate from its current emergency level as inflation continues inching up.
Variable rate borrowers
Indeed, the National Institute of Economic and Social Research has reported inflation could hit 3.9%, which is double the Bank of England’s target.
This means borrowers who are on variable mortgage rates – those which change according to external factors such as the Bank of England base rate – may want to keep a close eye on decisions made in the forthcoming months.
Indeed, Martijn van der Heijden, CFO of digital mortgage broker Habito, said: “Borrowers who are on a variable rate should still consider the impact that any base rate rises this year could have on their mortgage.
“Even if the rate increases by as little as 0.25%, this could see their repayments shoot up by hundreds of pounds a year, so it’s worth looking at all the options.”
You can read more about inflation and how it impacts your day-to-day finances here.
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