The majority of economists believe that the Bank of England won’t be changing the interest rates in the country for another 18 months. The Bank of England last changed them in early 2009 and since this time no changes have been made to interest rates in the United Kingdom.
In 2009 the Bank of England made the decision to lower interest rates to 0.5 percent, in a move that was designed to defend the economy against financial crisis. This was in order to protect people who had mortgages from higher interest payments and to a large extent the strategy has worked with homeowners expected to have saved a great deal of money.
Homeowners are very pleased with the interest rates that they are having to pay, but it is important to realise that they are not going to last. There is no other point in history when interest rates have been so low and so it is almost guaranteed that in the near future the base rate of interest is going to be increased.
The Monetary Policy Committee recently met for the three-year anniversary after lowering the rates and it is almost certain that they are not going to change the rate in the near future. The normal rate of interest in the country is around 3.5 percent and this is something that the rate will eventually be returned to.
For those people who took out a variable mortgage they have done very well from the government’s decision to keep interest rates low. Those who’ve been on a fixed-rate mortgage have not benefited from the change in interest.
In 2011 the inflation rate in the country was around 5.5 percent which is significantly higher than the interest rates. This has meant that people with savings were struggling to get a return on their investment, in fact, in many cases, those who had money in the bank were just watching it lose its value.
Around half of people surveyed by the website Moneysupermarket stated that they believe the interest rates set by the government have hurt their finances, rather than made them better.
While the fall in the rate of mortgage rates has been marked, the fall in the amount people are getting paid for their savings is even more dramatic. An average savings account five years ago paid around 3.5 percent, but today the figure has dropped to just over one percent. Unfortunately for the consumer the cost of taking out a personal loan, or credit card debt has increased, despite base rate interest being lowered.
Those who have a variable mortgage are the people who have benefited most from these times of low interest. The study by Moneysupermarket shows that around one quarter of borrowers have made use of lower interest rates and have paid more off their mortgage than they would have expected in the last three years.
Unfortunately, even people who’ve been saving money on their mortgage have lost out as the rate at which salaries are increasing is not matching inflation. Furthermore, the cost of living is increasing as gas and electricity bills have gone up substantially. People are also concerned about their job security and are increasing their savings, unfortunately this money they save gets relatively little return on it.
However, it is not all good news for those who have mortgages, despite the base rate remaining low several banks have decided to increase the amount they are charging for mortgages above base rate. They said this is largely because of increased borrowing costs and serious concerns over the debt crisis occurring in the Eurozone.