Bank Rates Stay at 0.5% – But New Mortgages Cost MoreMake Text Bigger
The Bank of England has kept the base rate at 0.5% and pegged quantative easing at the previously agreed £275 billion.
The decision means the base rate has sat at the record low for 34 months in a row and the £75 billion quantative easing top-up will complete around the end of the month.
The decision is no surprise. The Bank cannot decrease interest rates any further and a new round of quantative easing could snuff out any flicker of life in the stagnant economy.
For buy to let borrowers, loan costs are still rising because banks and building societies are finding funds more expensive to raise on the wholesale money markets, where banks pay the London Inter Bank Offer Rate or LIBOR.
Mortgage brokers John Charcol have tracked the wholesale costs of mortgages and illustrate the increased costs with residential mortgage rates.
“Six months ago 3-month LIBOR was 0.83% and the cheapest lifetime tracker rates on offer from two of the most competitive lenders, ING Direct and Woolwich, were Bank Rate + 1.89% and Bank Rate + 1.97% respectively,” said the firm’s Ray Boulger.
“Today, 3-month LIBOR is 0.26% higher at 1.09% but the cheapest lifetime tracker rates from both these lenders have shot up by over 1%, with no change in the arrangement fees or maximum LTV. The lowest rates now available from these lenders and Woolwich are now Bank Rate + 3.24% and Bank Rate + 2.99% respectively.”
In the long term, new buy to let mortgage rates will probably nudge up regardless of the Bank of England rate as wholesale money becomes more expensive for lenders due to the eurozone sovereign debt crisis that is undermining the stability of European finance system.
The Bank of England will reflect on raising rates against another bout of quantative easing, but most analysts predict the next 12 months will see little change as most central banks want to see how the eurozone crisis plays out before making any firm decisions that could have an adverse impact on economic growth.
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