Interest rates 'may not change for three years'
26th Apr 2012
The base interest rate in the UK may not change until 2015, according to one expert who has predicted the impact this will have on the mortgage market.
Ray Boulger, senior technical manager at John Charcol, explained that fixed-rates bottomed out around the turn of the year and they have been moving up over the last three months.
Therefore, while rates are still "well down" on a 12-month basis, when compared on a three-month basis they would be higher.
His comments came after Moneyfacts.co.uk recently reported that the average rate for a five-year fixed mortgage has decreased over the past year from 5.59 per cent to 4.86 per cent.
Mr Boulger explained: "The key driver for fixed-rate pricing is swap rates, and five-year swap rates are quite close to all-time lows. The key reason why we have seen such a sharp drop in five-year fixed-rates is probably because of the fall in gilt yields."
He added that the main reason for the sharp fall in gilt yields is the general recognition that the base rate is going to remain at 0.5 per cent for quite a long time.
"Most economists are expecting it to stay at 0.5 per cent until 2014 - I would agree with that and I wouldn't be surprised if it was still there in 2015," the expert predicted.
The longer that people expect bank rates to stay low, the lower swap rates come, and he said this is a key reason why rates have come down.
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