Mortgage holders to pay more as interest rates hit highest level in a decade
Thousands of Northern Ireland borrowers on variable rate mortgages are set to pay more after interest rates hit 0.75% - their highest level for nearly 10 years.
The Bank of England's Monetary Policy Committee (MPC) voted unanimously yesterday to raise the base rate from 0.5% to 0.75%, and said further gradual rises are on the cards.
The move sees rates rise above the emergency low of 0.5% for the first time since March 2009 and marks only the second hike since the financial crisis, after last November's quarter-point increase.
While it will be welcomed by savers, who could see a lift in their interest rates over the coming months, it will also increase mortgage rates for thousands of residential tracker mortgages here. The quarter-point rise is expected to add around £16 a month or £192 a year to the average mortgage.
Around 70% of UK home buyers have fixed rate mortgages.
But economist Paul MacFlynn of the Nevin Economic Research Institute (Neri) warned that even for such mortgage holders, the effect of rate increases would not be eradicated, only delayed. Mark Carney, Governor of the Bank of England, also said yesterday that rates would need to rise further to bring inflation back to the 2% target over the next few years, but he stressed hikes would be "limited" and "gradual".
"Policy needs to walk, not run," he said.
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Glyn Roberts, chief executive of Retail NI, expressed concerns about the increase.
"Retail footfall has decreased and a very significant number of large retailers have folded - this increase will certainly not be welcomed by the retail sector," he said.
"This is also not good news for many hard-pressed mortgage holders to see an increase in payments, particularly in Northern Ireland, where we already have the lowest discretionary spend.
"The UK economic recovery is at best sluggish and we believe this increase is premature."
But it will offer some relief to savers, who have seen their nest eggs decimated by above-target inflation and negligible returns.
The Bank of England had backed away from a rate rise earlier this year after growth slowed down sharply to 0.2% in the first quarter, but said the economy had recovered as predicted.
It forecast that growth rebounded to 0.4% in the second quarter, with data pointing to a similar rate of growth between July and September.
Mr Carney added: "UK growth in the second quarter is estimated to have rebounded as expected."
In its accompanying quarterly inflation report, the Bank kept its forecast for growth this year unchanged at 1.4%, but increased the outlook for 2019 to 1.8% from the 1.7% previously predicted. The report showed its predictions are based on financial market expectations for rates to rise to 1.1% by mid-2021, which would suggest two more quarter-point rises.
But it also said inflation - currently 2.4% - was set to rise slightly higher than it had predicted in May's forecasts after recent falls in the value of the pound and higher energy prices.