Bank of England raises interest rate to 1%

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The rise tightens the cost-of-living squeeze for Londoners and has been described as a ‘bitter blow’

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T

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he cost of living squeeze tightened for thousands of London home owners on Thursday as the Bank of England raised its benchmark interest rate to one per cent.

The 0.25 per cent increase – described as a “bitter blow” for London homeowners – was an unprecedented fourth rise on the trot from the Bank’s rate setting Monetary Policy Committee.

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Its interest rate is now at its highest since March 2009 when the recession that followed the global financial crisis sent the cost of borrowing tumbling to emergency lows to keep the global economy afloat.

The move came after America’s Federal Reserve lifted its key rate by 0.5 per cent on Wednesday in its biggest rise in 22 years.

The Bank said the hike was needed to reign in rampant inflation, which hit seven per cent in March and is expected to peak at around nine or even 10 per cent by the Autumn.

But it will mean a major extra burden for homeowners and businesses at a time when they are already grappling with surging energy, fuel and food prices.

The Bank of England move will trigger an immediate rise in housing costs for the roughly one in four home owning households with tracker, discount or variable rate mortgages that move in line with the Bank of England’s base rate.

For a homeowner with a typical London 25 year mortgage of £250,000 it will lift the monthly bill by around £35 from £1,353 to £1388. For a borrower with a larger £500,000 mortgage the monthly repayments will rise by about £70 from £2,706 to £2,776.

For the majority of mortgage holders on fixed rates the decision – which was widely expected by City forecasters – will make no immediate difference.

However, as their current deals come to an end they will have to remortgage at rates far above those they fixed at on their existing deals, especially if they are on two year trackers.

Fixed rates hit all time lows last summer and Autumn when the Bank of England’s base rate stood at just 0.1 per cent, It started rising in December when it went up to 0.25 per cent. There were further quarter point hikes at the February and March meetihgs of the MPC.

At their lowest point fixed mortgage rates were well below one per cent.

On Wednesday, the best rates available to borrowers with a 25 per cent deposit looking to fix for two years was the 2.29 per cent from First Direct. Borrowers with only a 10 per cent deposit can lock in at 2.49 per cent with the same lender.

Borrowers looking for peace of mind over five years can fix at 2.3 per cent with Barclays if they have a 25 per cent deposit or 2.64 per cent with First Direct if they have just 10 per cent up front.

Paul Johnson, director of the Institute For Fiscal Studies, warned earlier of the impact on people’s mortgages of the series of interest rates hike by the Bank of England

He told BBC Radio 4’s today program: “That could be doubling your mortgage interest payments over a period of time, so even small changes now, at least down the line once people have certain fixed rates run through, could have really big effects on people who have got significant mortgages.”

Liberal Democrat MP Sarah Olney said Londoners would be “unfairly hit” by the latest rise because an “out of control housing market” in the capital that forced home owners to take out far larger mortgages than elsewhere in the UK.

A poll commissioned by the Liberal Democrats found that 54 per cent of homeowners said the Government was not doing enough for them to afford mortgage costs.

The Liberal Democrats are calling for a new Emergency Mortgage Support Fund to support homeowners on the brink.

Ms Olney, who is the MP for Richmond Park and Liberal Democrat Business spokesperson said: “Hard pressed families in the capital are already on the brink and this rate rise will serve as another bitter blow.

“Rishi Sunak cannot wait any longer. Now is the time for taxes to be slashed and a new Emergency Mortgage Fund for those families who simply can’t afford this bill rise.

“However all this out of touch Government has to offer is endless tax hikes and empty promises.“It is families who have scrimped and saved to get on the housing ladder I worry about most today. Homeowners on the brink cannot be ignored any longer by this Government.”

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Credit: www.standard.co.uk /

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