3rd September 2013 at 4:52pm
Do you keep an eye out for news from the Bank of England at 12 noon, on a certain Thursday every month?
That’s when interest rate decisions are announced. And the latest today has confirmed that it remains at 0.5% – a historic low maintained since March 2009.
In August 2013, the Bank of England issued forward guidance on how it’s going to approach future decisions to change interest rates. The intention is that there will be no increase on interest rates until the unemployment rate is 7% or below.
So how might this affect us? Let’s consider firstly why the Bank of England gave this forward guidance – it was to ensure there was not an ‘unwarranted expectation of an increase in interest rates’. In other words, to create a bit of certainty. An expectation was set that it could be at least three years before we see a rise in interest rates.
So for those of us with mortgages or aspiring to get on the property ladder, this perhaps creates some breathing space, since the impact looks likely to be :
- Mortgage rates look set to remain low in the near term.
- Rates for new fixed rate mortgage deals could well fall as the outlook is for interest rates to remain low for a while.
- Competition between lenders might also hot up, so there could be even more opportunities to grab a good deal.
It’s not all good news
But low interest rates are not such great news for those approaching or in retirement. Low interest rates mean it can be difficult to get a good return on savings. Indeed with the Customer Price Index at 2.9% it means savings in the bank are more than likely being eroded by inflation. Many pensioners have had to eat into their capital to supplement their income in recent years and that looks set to continue.
Additionally, low annuity rates have created uncertainty for those considering retirement and some have held off from purchasing annuities in case interest rates were to rise. But there are a range of factors to take into account when considering annuity deferral such as investment risk, further deterioration in annuity rates, taxation impact and of course the income not paid during any deferral period. As with most things in life, there are risks and opportunities.
What about my mortgage?
I have a fixed rate mortgage which is due to expire within the next 12 months, so I for one will be looking out for a better deal. And with interest on my savings account likely to remain low, I’ll be considering investing more in my stocks and shares ISA if I can.
With the Bank of England’s announcement, ‘Interest Rate Thursdays’ aren’t going to be quite as exciting as they’ve been in the past…at least not for a while. But I am going to be taking a keener interest in Labour market Wednesdays from now on, and if unemployment falls below the 7% figure we might see some interesting interest rate movement once again.