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For the third month running the Bank of England left interest rates alone at 5 per cent. There may be pressure to increases rates fairly soon especially if inflation figures continue to worsen, but for now the Bank has to balance worries over slower economic growth against the widespread price increases driving up inflation.
This time last year rates stood at 0.75 per cent higher, so even though mortgages are harder to find and many lenders have increased rates over recent months, those on variable rate trackers that use the Bank of England rate as their benchmark are doing OK.
The problem for some people on these deals is that they have a time limit after which they revert to the lenders standard variable rate. At that point they will have to shop around again and they may find the range of mortgages available to be much narrower compared to last time they looked.
If there is ever anything such as a certainty, then it was surely the increase in base rates by the Bank of England this May. Then again in July a further quarter point jump brought rates to within one step of six per cent. Again there was little doubt about the increase in rates and most people were fairly certain it would be the usual quarter percentage point. Well everyone was right and base rates now stand at 5.75%, the highest rate for several years. Many borrowers with mortgages based on high income multiples must now be seriously considering their course of action should rates continue to rise in the autumn months.
We were as surprised as everyone else at the decision by the Bank of England to hike interest rates again in January, one month earlier than expected. The increase was widely unpredicted by experts with almost all expecting the rise to come in February. The committee had obviously been worried by the latest inflation figures which will not be made public until later this week. Almost certainly high street mortgage and loan rates will follow suit fairly quickly this time.
However since that rise in January, due to improvements in the rate of inflation (down to less than 3% again) and lower consumer spending, the desired effect has been created and rates remained stable in February, March and again in April, leaving many borrowers breathing sighs of relief.
Inflation rate indicators have dropped again over the summer, so many people now expect a period of calm and stability, allowing loan and mortgage borrowers to reassess their new, more expensive, situations.
April interest rate situation - 10th April 2007
Shock rates jump to 5.25 per cent - 11th January 2007
Interest rates jump to 5 per cent - 9th November 2006
Interest rates frozen again at 4.75 per cent - 6th October 2006
Bank holds interest rates at 4.75 per cent - 8th September 2006
Interest rate decision was six to one - 16th August 2006
We thought it would be interesting to look back at historical interest rates and see what's been happening over recent years. Despite two rate rises recently, relative stability at around 5% for the bank of england base rate is not unusual. Back in 2000 the rate stayed at 6% for almost the whole year and in 2002 the rate didn't changed from 4%. Looking back over the last 17 years the highest rate has been 15% in 1989 whereas the lowest was fairly recently in 2003 when rates dropped to a low of 3.3%.
Having looked at the changes in the base rate of interest over recent years you would expect mortgage interest rates to make similar reading, but there is an important difference. We've looked at the Standard Variable Rate (SVR) reported by Halifax. Back in the mid-nineties their SVR was between 1.2% and 1.4% higher than the Bank of England base rate. Now, however, the rate is consistently 2% higher - an indication, we think, that the building societies are no longer regarding their SVR to be their day to day normal mortgage interest rate. So, as we've said many times over, if your mortgage is running on your lenders SVR then do something quickly - you're wasting your money!
