Mortgages 'will be seriously affected by changes to the base rate'

05 August 2010

Written by Steve Olejnik

Changes to the base rate will affect mortgages, Think Money has said, but there are many different opinions on when the Bank of England's (BoE) Monetary Policy Committee (MPC) will decide a rate rise in necessary.

Today (August 5th), the MPC voted to keep the base rate at 0.5 per cent - a level it was decreased to on March 5th 2009.

However, there is debate over how long this historic low will be maintained, which a mortgage expert from Think Money noted made it difficult for those purchasing property to know what type of product to choose.

Former deputy governor of the BoE Sir John Gieve, who was once a member of the MPC, said he "wouldn't be at all surprised" if interest rates hit 2.5 per cent over the next 12 months.

However, two forecasting groups have both said that the rates will stay at their current level for much longer.

The Centre for Economics and Business Research has predicted that they will remain at 0.5 per cent "at least to the end of 2011 and probably beyond", while the Ernst & Young Item Club said there would be no changes made by the MPC until much further in the future than the markets and the Office for Budget Responsibility anticipates.

"It's vital that homeowners think ahead and ask themselves how they'd be able to cope if the base rate does go up, taking their mortgage payments up with it," Think Money's expert commented.

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