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Bank Rates

The Bank of England’s Monetary Policy Committee voted to raise the official Bank Rate paid on commercial bank reserves by 0.25 percentage points to 5.25%. This was done in a pre-emptive move to curb inflation as the committee expects consumer inflation to rise further in the near future.

In the United Kingdom, output continues to rise at a firm pace. Domestic demand has grown steadily and credit and broad money growth remain rapid. The international economy continues to grow strongly.

The decision to increase the base rate has led to a wave of announcements by mortgage providers changing the rates of their fixed-rate offerings or scraping them completely. This will deny consumers the chance to avoid the Bank of England’s next increase, an event which experts claim is becoming increasingly more likely in the short term.

A mortgage analyst has said that the following months will be an interesting time in the mortgage market. Short-term fixed rates of less than 5% could vanish, or alternatively associated arrangement and product fees could increase in an attempt to keep them low, as lenders are forced to buy their funds at the now much higher rate offered by the money markets.

Currently the inflation of 2, 75% is already well above the government’s 2% target and analysts are anticipating a nasty inflation number, exceeding 3%.

This news is an unwelcome surprise to many homeowners. It will add £16 to the monthly payments of those with a £100,000 repayment mortgage.

Employer groups say it could harm already struggling businesses and that it is unlikely to dampen wage increases.

On the other hand, the raise is welcome by savers, if bank and building societies pass on the increase to their savings rates.

In a separate move, the European Central Bank held its main eurozone base rate at 3.5%