The Bank of England’s new governor announced that the Bank of England’s Base Rate was going to stay at its current historical low for the next three years, at least, earlier this month. What does this mean for you?
What Effect Do Base Rates Have on Mortgages?
For the last few years, interest rates, influenced by the Bank of England’s ‘Base Rate’, have been at a historical low. The Bank of England’s Base Rate affects everyone in the UK, not just people in England. As a result, interest rates on savings have been low (not good if you are a saver) and interest rates on mortgages have been pretty low, assuming you met the criteria of the lender (very good news if you were a property buyer).
Of course, part of the worry of buying when interest rates are this low, if you are taking out a mortgage, is that interest rates can always rise. This could increase your monthly repayment on your mortgage if you were on a ‘Variable Rate Mortgage’ – for more info, click on this link: http://www.mov8financial.com/mortgage-advice-services/variable-mortgages)
What Effect Do Base Rates Have on the Mood of Property Buyers?
The thought of interest rates rising could be enough to put you off buying a house with a mortgage, particularly if your ability to afford your monthly repayments was based on the current ‘deal’ you were being offered on the mortgage (remembering that these deal periods come to an end at which point you have to hope that the interest rates on offer are affordable and that you meet the other criteria for being accepted for that new mortgage product).
So, as a potential buyer, it must have been a bit of a relief to hear the Bank of England’s new Governor announce earlier this month that the Bank of England Base Rate was going to remain where it was for the next three years, at least. It was an announcement that shocked quite a lot of people – http://m.bbc.co.uk/news/business-23588958
What Effect Will This Have on the Mortgage and Housing Market?
Just because the Base Rate stays low doesn’t necessarily mean that your mortgage rate will. Mortgage lenders can set their own rates, independent of the Base Rate, and their interest rates are influenced as much by the rate that other banks will lend to them at (the LIBOR rate – last made famous by a bunch of banks conspiring to fix the interest rate) but it most certainly has a huge effect on the rates that mortgage lenders will lend at.
The net effect of all of this is that we actually have a clear statement by the Bank of England that interest rates are going to stay low for a significant period of time. That removes one of the worries that might have been holding people back from buying a property and taking-out a mortgage in the last few years.
So will this have a positive effect on the property market? Almost certainly.
And is it a huge coincidence that things seem to have picked-up in the property market in a big way at about the same time as this announcement was made? I’d say almost certainly not!