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Everyone expected interest rates to rise - they haven't, so what does this mean?

Nic McBride

Nic McBride
May 10, 2018


The Bank of England has kept interest rates on hold at 0.5%, despite having been widely expected to raise them just a few months ago.

However, experts say the long-anticipated rise will still happen, it's just a matter of time.

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The Bank of England's official borrowing rate is, put simply, what influences how much borrowers pay, and savers earn.

An eventual rate rise will mean about five million households with variable or tracker rate mortgages will have to pay more - but would be some good news the UK's 45 million savers.

Find out more below.

The Bank also revised its growth forecast for 2018, from 1.8% - down to 1.4%.

It says the cut is almost entirely due to the disruption to the economy caused by the Beast from the East, which hit the UK in March.

The Bank expects a rebound in the coming months and notes that unemployment remains low.

Back in February, economists had widely tipped the Bank to raise interest rates when May arrived.

That view changed after figures released last month showed that the economy grew by just 0.1% in the first three months of the year.

 

Rates will rise – but when?

BBC economics editor Kamal Ahmed said the next interest rate increase would now likely be far later this year - unless there was a strong bounce back in the economy or inflation started rising substantially again.

"Yes, they will rise at some point. But the chances of that happening sooner rather than later has receded."

Ahmed said there were "too many erratics" for rates to be raised now.

"How will the increase in oil prices following America's decision to pull out of the Iranian nuclear agreement affect inflation?

"Will that miserable Q1 growth figure be revised upwards, as Q1 figures have been in the past, particularly those affected by the weather?

"Will consumer confidence return?

"Will there be a major Brexit break-through?"

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'Homeowners unaware of what rises will mean'

Daniel Hegarty, CEO and founder of online mortgage broker Habito, said rises were only a matter of time.

"Our research shows that over forty percent of British homeowners haven't switched, or even reviewed, their mortgage in the past five years, so may not be aware of the impact that future rate changes could have on their finances.

"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."

"Homeowners on their lender's standard variable rate could still stand to save thousands by switching, regardless of the base rate staying put today. With competition between lenders still relatively high, there are good longer term fixed deals to be had. Switching to a 5-year fix, for example, would lock in their monthly mortgage repayments from any base rate rises until 2023.

 

What will an eventual rate rise mean for you?

The cost of borrowing will rise

A quarter of British people with debt will struggle under the burden of rising costs when interest rates rise, according to a recent survey.

Some 28% of people in the UK believe the effect of a hike will threaten their financial stability, the international savings survey by ING says.

Rising consumer credit has been a big concern of the Bank of England in the last few years. Unsecured consumer lending is growing at around 9.5% a year and at the end of last year it reached more than £207 billion

Meanwhile, 13% of people have a bank overdraft, 7% owe money to family and friends, and 8% of households have student loan debt.

We’re all going to find it more expensive to borrow, but especially on personal loans, finance deals and mortgages.

Mortgages

If you have a mortgage, now might be a good idea to try and get a good fixed rate.

If you're one of the country's eight million mortgage holders, and you’re not fixed, you’re going to be paying more when rates start to rise.

And there are currently around five million people with variable rate, or tracker mortgages.

Those on fixed-rate mortgage deals won’t be affected, either by the last rate rise or any in the future – so long as their fixed-rate deal lasts.

Over the last year, two thirds of first-time buyers have opted for a fixed mortgage, usually this is for two years, but other fixes last three and even five years. Even if it means paying more now than a variable loan, you could save money in the long term if interest rates start to climb.

Mortgages are already on the way up, both in response to the last base rate rise and to the cycle of interest rate rises banks can see we are in.