Economy

Homebuyers’ pain as Bank nudges loan rate up to 0.75%

Homebuyers’ pain as Bank nudges loan rate up to 0.75%

The decision to raise interest rates was widely expected by economists but views on whether or not the hike was justified were decidedly mixed.

Members of nine-strong Monetary Policy Committee (MPC) are predicted to increase rates from 0.5% to 0.75% in what would mark only the second rise since the financial crisis struck, following last November's quarter point hike.

Economists are not ruling out the possibility of more rate hikes this fiscal as RBI reiterated its intention to stick to the 4% inflation target and indicated upside risks to the target because of the larger-than-average increase in minimum support price for summer-sown crops and volatility in crude oil prices.

Sam Mitchell, of the online estate agents Housesimple.com, said: "Although this rate rise is unlikely to cause widespread panic, there will be lots of homeowners feeling a little less financially comfortable today. Policy needs to walk, not run".

"An increase in deposit rates by private banks might not necessarily result in a meaningful gain in their share in deposits".

HSBC - Tracker mortgages will go up on Friday in line with the base rate.

However the respected Fraser of Allander think tank at Strathclyde University said that, while the increase might suit the United Kingdom as a whole, it was not ideal for Scotland.

What is the main reason for increasing the policy rate?

However, if you have a fixed-rate mortgage, you may find you have to make higher monthly payments when you come to renew.

It also expected Britain's economy would grow by 1.4 percent this year, unchanged from its forecast in May, but it nudged up its 2019 forecast to 1.8 percent from 1.7 percent.

'As a mutual which is owned by its members, it is our priority to deliver highly competitive and sustainable rates for both our savers and borrowers'.

But Mr Carney said growth had since "rebounded", and the Bank raised its United Kingdom economic outlook in 2019 from 1.7 to 1.8 per cent growth in GDP.

The MPC said that any future increases "are likely to be at a gradual pace and to a limited extent" and said that the outlook for the economy could be "influenced significantly" by Brexit.

However, the policy committee signaled that it was in no hurry to raise them further with an uncertain Brexit on the horizon.

The decision to raise interest rates means the UK's basic interest rate is finally raised off the floor that was put in place in the wake of the global financial crash and ensuing recession. "For people having existing loans most of the personal and auto loans are usually at fixed rates, hence the biggest impact comes to mortgage loans".

So there is no direct link to the Bank rate.

Given this, we have to ensure that we run a tight ship on the risks that we control to maximise the chances of ensuring macroeconomic stability and continuing with the growth profile of 7-7.5 per cent, going forward.


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