Mortgage misery looks set to continue
May 24, 2007
After our fourth mortgage interest rate rise in 10months, it has emerged that we have been let off lightly with a rise of 0.25%, because apparently there were hopes to lift the rates by an unprecedented 0.5%.
This latest increase has been difficult enough to cope with £32.64 per month being added to a typical £200,000 mortgage. Had it risen to the proposed 0.5%, then the increase would have been £65.57 extra per month for those with a standard variable rate loan.
It is the Monetary Policy Committee (MPC) who meet to decide where to pitch base rates. This committee was created 10 years ago and consists of a panel of 9 members.
It would seem this 0.5% increase was under serious consideration by the panel before eventually, unanimously agreeing to 0.25%. The last time a 0.5% increase was suggested was way back in 2000.
It is an unenviable task for this committee, since the bank is under a huge amount of pressure to raise base rates in order to keep a lid on inflation.
The Government’s chosen measure of inflation is the Consumer Prices Index, which fell in March from 3.1% (its highest level in 15 years) to 2.8% in April according to the Office for National Statistics.
As Britain’s inflation remains the highest in Europe, the Bank warns that rates are likely to rise again in the coming months-possibly June or July.
While this is all bad news for homeowners with mortgages, on the flip side those with savings/investments may be in line for a windfall since banks and building societies will be under pressure to pass these increased rates onto their customers without delay.
Past experience has taught us that the financial industry are quick to punish borrowers, but much slower to reward savers.
The Bank of England governor Mervyn King’s most recent inflation report shows the base rate rising by 0.75% between August 2006 and January 2007, yet the average savings rate only rose 0.38%. Also mortgages rose by 0.7%.
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