Times repor ted recently that home owners, who had braced themselves for an imminent increase in mor tgage repayments, have been given a reprieve.
The Bank of England has reiterated that interest rates will only rise gradually, when they eventually do, and analysts have concluded that this will not begin to happen until next year.
Comments from Bank officials after this quar ter’s inflation repor t suggested there was little chance of a rate rise in the next four months, calming expectations among economists of a rate rise this year.
Mark Carney, governor of the Bank, emphasised the impor tance of earnings growth just as the Bank cut its forecast for wage growth this year by half – from 2.5% to 1.25%.
He said: “Interest rates can be expected to increase as the expansion progresses but, given the broad forces acting on our economy, the normal interest rates of tomorrow are likely to be lower than those of yester year.”
Ray Boulger, of independent mor tgage advisers John Charcol, said, “The impor tant thing for borrowers is not so much whether the first increase is this year or next, but that it will be slow. Even on a five-year time horizon we are looking at a ‘new normal’ of three per cent.
“We won’t see many fixed-rate mor tgages go up in the shor t term; we may even see more reductions.”
Exper ts have pointed out that, as the prospect of a rate rise this year disappears, cer tain tracker and variable rate mor tgages now look attractive compared with fixed-rate deals as, unlike fixed-rate mor tgages, life-time trackers and variable deals are widely available without penalties on borrowers who want to repay their loans early. Research by data provider Moneyfacts shows the average rate on a two-year fix at 75 per cent loan to value is the same today as it was a year ago, at 3.46 per cent and that uptakes on five-year fixed deals, which provide greater security, are rising.
“With many now predicting a ‘later than first thought’ base rate rise, some providers have star ted reducing their mor tgage rates a little,” said Charlotte Nelson, of Moneyfacts. “Borrowers need to bear in mind that they don’t need to see a base rate rise to increase the cost of mor tgages – there are other influences at play.”