Mortgage payers and business owners will be hopeful that a cut in interest rates to 5% by the Bank of England this week signals a return to the pre-pandemic era of low borrowing costs.
Unless much lower interest bills arrive soon, thousands of homeowners and businesses could be forced to sell up.
Claire, a maternity support worker from Portsmouth, said her mortgage payments rocketed last year and life has been “really difficult” ever since.
Claire and her family moved into their house in January 2022 on a 1.99% two-year fixed repayment mortgage, paying £1,042 a month. Since then their mortgage payments have risen by more than £500 a month to £1,596.90.
“It has caused a lot of worry and stress,” said Claire, 36, who lives with her husband and four children, aged between seven months and 12 years old. They hoped to release equity from their property before remortgaging in January 2024, but decided to fix their mortgage for another two years at an interest rate of about 5.7%.
Claire would like the 2% loan rate to be back on the table when she refinances her mortgage again.
The governor of the Bank of England has other ideas. Andrew Bailey said after a narrow five to four vote to shave 0.25 percentage points off interest rates that there was little chance of going back to the ultra-low levels of between 2009 and 2021 without another major economic shock.
Economists call it the equilibrium or neutral rate and Bank documents show policymakers expect that level to be about 3.5% in three years’ time, such is the benign, shock-free future mapped out in the organisation’s central forecasts.
A neutral Bank rate of about 3.5% would mean mortgages of about 4.5% to 5%, far above the level Claire and other borrowers are hoping for.