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Mortgage rate to rise 'sooner than expected’

By Peter Dominiczak and Anita Singh
Mortgage rates are poised to start rising sooner than expected, the outgoing deputy governor of the Bank of England warned yesterday.
Charlie Bean said the base rate would soon start increasing in “baby steps” from its current level of 0.5 per cent to reach 3 per cent by 2017.
Mortgage lenders have started to introduce controls to ration home loans, amid growing fears that the return to “normal” rates will plunge many homeowners into financial difficulty.
Britain’s faster-than-expected economic recovery had led experts to speculate that rates would go up in the first quarter of next year.
However, in an interview with the BBC, Mr Bean indicated that the rises could start earlier.
Higher rates would provide respite to millions of pensioners, who have seen the value of their savings eroded by high inflation and rock-bottom returns.
Mr Bean, who is a member of the Bank’s Monetary Policy Committee, said that rates could settle between 2017 and 2019 at a lower level than the average of 5 per cent seen in the years before the economic crash.
“There’s a case for moving gradually because we won’t be quite certain about the impact of tightening the Bank rate given everything that has happened to the economy,” he said.
“It might not operate in quite the same way as before the crisis. So that’s an argument, if you like, for being a little bit cautious, moving in baby steps to avoid making mistakes.
“But of course if you want to pursue that strategy, you need to start taking those baby steps a bit earlier, otherwise you end up being behind the curve.”
Mr Bean conceded that raising rates too early could affect economic activity.
Lord King, the former governor, said that a “normal rate” of around 5 per cent or 5.5 per cent was “where we ought to be” in a “very long time”.
“We don’t get there by raising rates now, because that will generate a further recession now,” he said.
He added: “I have no idea what will actually happen but I think the factors that drive it will be primarily political.”

 

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