UK Rate Hike Unlikely to Hinder Luxury Housing Market

Millions of homeowners are expected to be hit with a mortgage rate rise today with the Bank of England'90 per cent certain to announce its first interest increase since 2007

Millions of homeowners are expected to be hit with a mortgage rate rise today with the Bank of England'90 per cent certain to announce its first interest increase since 2007

"Savings rates have finally taken a positive turn over the past year, with challenger banks stepping in to offer savers some sort of return".

"On the borrowing side, looking at the housing market, many mortgage holders are now on fixed rates and so the interest they pay on their borrowing won't change immediately".

On Thursday, the Bank of England increased the official bank rate from 0.25% to 0.5% on Thursday in response to rising inflation.

Bank governor Mark Carney said: "With unemployment at a 42-year low, inflation running above target and growth just above its new, lower speed limit, the time has come to ease our foot off the accelerator".

"For savers, they may see an increase on the rate paid on their deposits". He said: "Households are generally well positioned for a rate increase".

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The Bank raised rates from 0.25% to 0.5%, the first hike in 10 years.

But analysts warned the Bank's suggestion that Thursday's rise will not be a one-off event and that further hikes over the next three years could hit thousands now on variable rate mortgages.

The move comes as the Bank looks to dampen Brexit-fuelled inflation, which it predicts will peak at around 3.2% this autumn.

Speaking on the BBC's Today Programme Broadbent said: "We have said that given all the other things we assume in our forecast, many of which will be misses - there's always unknown things and unpredictable things happening - but given our outlook now, we anticipate we'll need maybe a couple more rate rises to get inflation back on track while at the same time supporting the economy".

"Our plan now is to save as much as possible, lowering the loan amount and getting a better rate as a result".

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TSB announced a smaller increase, of 0.15 percentage points - although its variable rate mortgages will rise by 0.25 percentage points from next month.

However Robert Gardner, chief economist at Nationwide Building Society, said consumers need not panic about further rises just yet.

Pensions will also receive a boost, with longer-term annuities strengthened by the rise, benefitting those approaching retirement. For example, the average easy access account stands at 0.39% today, while back in July 2007 (the last time base rate rose) it stood at a whopping 4.05%.

Rates reached a record-low of 0.25% in the wake of last June's Brexit vote.

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