The Bank of England has announced that it has made a decision to keep interest rates at 0.5%. The news will provide respite to debtors as latest figures from Stepchange reveal that Outstanding lending to individuals is £1,584 billion as at end March 2018. With £209.2 billion is outstanding consumer credit (£70.7 billion on credit cards). The charity estimates that around 3.3 million people are experiencing severe problem debt wi
In response to the news Richard Haymes, Head of Financial Difficulties at TDX Group said “The decision is good news for those living in debt or teetering on the edge of financial difficulty. We expect the level of monthly Individual Voluntary Arrangements (IVAs) and Trust Deeds to grow by around 17% this year; a rise in interest rates would have a significant impact on the ability of these individuals to meet repayments and ultimately stay within the strict requirements of these debt solutions.”
“Figures from Creditfix, the largest provider of personal insolvencies in the UK show that 20.2% of its customer base holds a mortgage. It’s likely, due to their credit position, that most of these customers will have a variable mortgage that would have left them particularly vulnerable to an interest rate rise. A 0.25% hike would have left holders of £250,000 mortgages with a monthly repayment increase of £31*. This may appear a modest rise but for people trying to manage debts through IVAs or Debt Management Plans it could have a detrimental impact, rendering debt solutions unviable or in need of renegotiation.
“While a continuation of the low-interest environment is bad news for people holding pensions, investments and living on savings – reducing their earning potential compared to periods of ‘normal’ monetary policy, a static interest rate provides relief and stability for those in financial difficulty or on the brink of difficulties.”
Craig McKinlay, Sales and Marketing Director, Kensington Mortgages, said “Only until recently did a rate rise feel inevitable in May, and it is likely many borrowers will feel relieved by today’s news. However, we shouldn’t remain under the impression that today’s outcome will last forever. Swap rates between banks are still on the increase and a further, albeit gradual rise, at some point this year is still very likely. In the meantime, whilst rates remain at near historical lows, now is a good time for borrowers to get in touch with a mortgage broker to find a deal that best suits their individual circumstances, and possibly consider fixing to provide certainty through some uncertain times.”
Markus Kuger, Senior Economist at Dun & Bradstreet said “Today’s economic assessment from the Bank of England is promising, despite lower than expected growth figures. Brexit uncertainty has inevitably influenced the BoE’s decision to maintain inflation at its current rate, and with robust nominal wage growth and real wages finally picking up, we expect rates to be maintained in the near term. Following the disappointing January-March growth figures, we have downgraded the Dun & Bradstreet’s country risk rating for the UK back to ‘deteriorating’ due to the lack of progress in Brexit talks (after upgrading to ‘stable’ last month).”
“UK growth continues to lag behind most other European economies as long-term concerns about EU-UK trade relations persist. But despite today’s announcement and poor GDP growth in Q1, there is still pressure on the Bank of England to raise interest rates later this year.”