Mortgage fears as Bank hints loan rates could double this year

HOUSEHOLDS were last night warned that interest rates are likely to double this year.

Bank of England governor Mark Carney said inflation was heading back above 3 per cent, and rates may need to rise ‘somewhat earlier and by a somewhat greater extent’ than previously thought to control it.

This could be good news for savers – when the banks finally pass on the interest rate rises – but would be painful for the millions of households with variable rate mortgages.

A rate rise to 0.75 per cent in May would add £19 a month to repayments on a typical £150,000 25-year mortgage.

Mr Carney’s comments were seen as a clear signal that, a decade on from the financial crisis, the era of ultracheap money is over.

The Bank of England’s monetary policy committee voted unanimously to keep interest rates on hold at 0.5 per cent for now – but analysts said rates look likely to rise in May and in November – taking them to 1 per cent before the end of the year. Further rises are expected next year.

Charlotte Nelson, a finance

‘Music to the ears of savers’

expert at Moneyfacts, said: ‘The talk surrounding another rate rise will be music to the ears of savers who have had to endure record low rates for a long time.’

The Bank raised rates for the first time in more than a decade in November, from 0.25 per cent to 0.5 per cent. At the time, it suggested two or three further rises would be needed to bring inflation back under control.

‘In order to bring [inflation] back to target … it will likely be necessary to raise interest rates somewhat earlier and to a somewhat greater extent than we thought in November,’ said Mr Carney yesterday.

Inflation fell from 3.1 per cent in November to 3 per cent in December but Mr Carney warned it could rise again in the coming months as a result of higher oil prices.

He stressed any rate rises would come at ‘a gradual pace and to a limited extent’ and said rates would not return to typical pre-crisis levels of 5 per cent or rise as fast as they used to.

Andrew Sentance, a former member of the Bank’s MPC who is now senior economic adviser at PricewaterhouseCoopers, said: ‘It is no surprise to see interest rates being kept on hold this month. But it is still likely that we will see at least one rise in 2018.’

There are around 45million savers in the UK who would ben- efit if rate rises are passed on by their banks and building societies. However, millions are still waiting to feel the full benefit of the last rise in November.

Around 9million households have a mortgage – with half on standard variable or tracker rates that go up when the Bank raises its official interest rate.