Cost of borrowing goes up
The Bank of England today announced plans to lift interest rates to a six-year high to curb inflation, currently at a 14-year peak. The quarter of a point raise, to 5.5, per cent pushes the cost of borrowing to its highest level for six years.
The decision by the Bank’s Monetary Policy Committee has been widely expected for weeks amid strong consumer demand that has caused inflation to sit at it's highest point since the Bank gained independence in 1997.
The quarter-point rise will add an additional £31.25 a month to the typical cost of an interest-only mortgage for a house worth £150,000.
Nick Leeming, Director of propertyfinder.com commented:
The property boom is not unstoppable. There are already early signs that the housing market is slowing down – price growth and demand for mortgages are both moderating.
Despite inflation climbing to 3.1 per cent in March, the Bank repeated that it expected inflation to fall back "to around the 2 per cent target in the course of this year" because of lower gas and electricity prices and weaker import price inflation.
Nick Leeming added:
With four rate hikes since the summer to contend with, new home buyers in particular are facing much higher mortgage costs and inevitably that will reduce appetite to buy a home. Someone buying a home today will now pay over £150 more in monthly mortgage payments than a year ago. That’s a crippling 25% increase. Today’s move may prove a step too far.
Uncertainty now prevails over the Bank’s next move, although further increases in the Bank of England base rate are predicted.
And while the rate increase will come as a blow to borrowers, it spells good news for savers as the latest increase should take the best buy rates on easy access accounts close to the 6 per cent mark.
However, Sue Hannums, savings manager at AWD Chase de Vere, an independent financial adviser, warns "savers should be on their guard, because not all banks and building societies pass on the full rate rise to their customers".
