Interest rates stay the same - but mortgages may still cost more

Filed Under Finance

With interest rates being maintained at 5.75pc by the Bank of England yesterday, it seems like borrowers can heave a sigh of relief - their mortgages will remain as they are and other costs of borrowing won’t rise this month either.

Well actually that is only partly true as beleaguered borrowers may still find their mortgage payments increasing, even though the Bank Of England base rate hasn’t changed this month.

This is bad news for those with big mortgages who were hoping for a bit of reprise after five hikes in interest rates during the last year. But how can this be? After all, its not costing the mortgage companies any more to borrow money.

Well it seems the credit crunch is exerting its influence yet again. Although the base rate has remained the same, the interest that the banks are charged for inter bank lending (the Libor), has increased significantly. So it costs more for banks to borrow from each other. If it costs them more to borrow then you can bet your bottom dollar that it will cost you more too.

So although the Bank of England is acting to increase the availability of credit to banks in the UK, this action may not be enough to stop banks recouping their higher interest costs, by increasing the costs of their mortgages.

In short you pay for this crisis with higher mortgage payments.

So for those two million home owners with fixed payment mortgage nearing the end of their term, yesterdays news about interest rates was good news. However these people, along with anybody with a mortgage, should still be prepared to pay more for their mortgage soon, unfortunately.