Bank Rate is determined by the Bank of England. Essentially, it tells banks and building societies the price at which they must buy and sell their money. Since 2009 Bank Rate has been at a historic low of 0.5% following an “emergency cut” by the Bank of England, however following various political shake-ups in recent days (i.e. Britain’s decision to leave the European Union, Theresa May being appointed Prime Minister, and a new cabinet being appointed) many were expecting the Bank of England to announce a change in Bank Rate — not for it to increase, but to get even lower, down to 0.25%. Despite these expectations, last week the governor of the Bank of England, Mark Carney, announced that Bank Rate would remain at 0.5%.
This means that at this point in time, despite the current political machinations that may be going on, not much has changed for people looking to get a mortgage or remortgage. Banks and Building Societies are continuing to offer great deals, including some of the lowest fixed-rate mortgages we’ve ever seen, and we can continue to take advantage. Of course, this doesn’t mean there will not be a cut at some point — many expect it to be as soon as next month. If it does fall further, borrowers may not see much impact as rates are already incredibly cheap.
The Rise in Bank Rate
Economists have been predicting for Bank Rate to rise “in one or two years” since 2009. Every time, they’ve been proved wrong. “When will Bank Rate rise to pre-credit crunch levels?” is still one of the most important questions to ask when analysing our economy, and the country’s rate of recovery. From many people’s point of view, it looks as if it may take some time to come.
Should Bank Rate rise, it will pose a much greater risk to mortgage borrowers, and the housing market as a whole. Everyone who has taken out a mortgage since 2009 is used to historically low mortgage repayments. Many of these borrowers are on fixed-rate mortgages, and most only have a small amount of room to allow for rises. Many would struggle should rates rise, unless they employed the service of an independent mortgage advisor.
If the Bank of England was to raise Bank Rate, it could potentially cause a rush of sales from homeowners being forced to downsize, or banks being forced to repossess properties. This would have a huge impact on banks, the housing market, and the economy as a whole. The Bank of England is fully aware of this, and this is one of the reasons why many economists do not expect bank rate to rise any time soon.
In summary, many experts consider it unlikely for us to see a rise in Bank Rate for the foreseeable future. However, it’s almost impossible to predict how rates will change fully accurately. For many people, it may be right to stick to a fixed-rate mortgage to guard against potential rises in rates. All the above will affect everyone in different ways, for full, comprehensive advice on what is suitable for you, and your situation, get in touch with one of our specialist mortgage advisors.