MortgagesJul 14 2016

Bank of England maintains base rate at 0.5%

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Bank of England maintains base rate at 0.5%

The Bank of England’s Monetary Policy Committee has defied expectations by keeping the base rate at 0.5 per cent.

The committee had been expected to cut its benchmark borrowing costs by 25 basis points today (14 July).

One Bank of England policymaker, Gertjan Vlieghe, voted to cut interest rates to that level, but the other eight members of the MPC voted to leave borrowing costs on hold until August.

In the wake of the UK’s vote to leave the EU, Bank of England governor Mark Carney stated monetary easing could take place over the summer and hinted at possible changes to the base rate.

At the start of this week, Royal London Asset Management joined other financial institutions in predicting an initial cut in interest rates following the MPC meeting, ahead of August’s inflation report.

The rate cut would have seen borrowers on tracker mortgages that follow the Bank of England’s base rate end up better off. Several lenders already increased rates on tracker mortgages ahead of a suspected change.

The total value of variable rate mortgages is £611bn, according to the Council of Mortgage Lenders, the industry body and 1.5m borrowers have bank rate trackers.

The Council of Mortgage Lenders highlighted that the average outstanding mortgage in the UK at the end of the first quarter was £116,000 with an average outstanding mortgage rate in May of 2.9 per cent.

Jeremy Duncombe, director of the Legal & General Mortgage Club, said despite the fact the rate has stayed the same, many lenders have already taken steps to price a base rate reduction into their products, and cheaper fixed rate deals over longer terms have started to come to market over recent weeks.

He said: “Despite the uncertainty around Britain’s decision to leave the EU, the mortgage market appears to have reacted calmly.

“Whether base rate is cut in future or not, uncertainty presents a good opportunity for brokers to talk to their clients about potential mortgage and remortgage options available to them given the new market dynamics.”

Cash Isa rates are already at historic lows, averaging 0.82 per cent, according to the Bank of England, having fallen 65 per cent over the last five years.

Interest on a typical 90 day deposit account has also dropped by 82 per cent over the last 10 years.

peter.walker@ft.com