Confirmed Base rate cut today

As expected, the news has just come through that the Bank of England has officially cut it's base rate for the first time in nine years, halving it from 0.5% to 0.25%.
Predicted growth in the UK economy has not materialised, and the Bank of England GDP forecast for 2017 has been slashed from 2.3% to 0.8%, citing changes in the 'economic outlook'. In effect pointing towards Brexit as a major factor.
The BoE has introduced other measures to go alongside the latest interest rate drop. A £60bn quantitative easing package has been announced alongside rulings that will more or less force the banks to pass on the base rate cut to their borrowers.
It has been calculated that the average mortgage saving will be around £20 per month, but it should be noted that only around one and a half million mortgages actually track the base rate. I am happy to say that my own mortgage does, but on the other hand, I have an endowment which will not meet the repayment target. Where I am saving on interest, I am paying extra off the principal to help to close the gap between likely endowment outcome and the principal amount owed.
An endowment is, of course an investment, so how will the interest rate drop affect investments? Simply put, if you had £10,000 invested, a 0.25% drop means you will receive £25 less than previously which should mean you get a measly £40 or so for your hard-earned cash. I can remember the days when you would expect to make a grand from a ten grand pot, so saving your money seems almost pointless if you are hoping to live off the interest.
The positives here are obvious for (some) home owners, but overall, with a falling GDP and little return on money in a deposit account, the general economic mood is not overly positive. That said, we are not currently on target for another recession, and there is every indication that there could be another base rate cut, which could leave us with an unprecedented zero percent base rate

Bank Base Rate drop expected today

After years of waiting for the next interest rate announcement, it may finally be announced today. Up until the Brexit vote, I am sure most commentators would have expected an interest rate rise to be the next Bank of England move, but post-Brexit Britain brings with it a somewhat less stable economic environment.
The new rate is expected to be a drop from 0.5% down to 0.25%, meaning an average mortgage saving of £20-£25 per month. Of course, many current mortgages are fixed rate and will not benefit from the drop.
More to follow when there is confirmation....watch this space

Finally interest rates set to rise

Increasingly, even the most pessimistic observers are finding that the main economic indicators are signalling a strong recovery from the financial crisis some six or seven years later...

I am sure there will be politicians queuing up to take the credit just as there were those ready to apportion blame, but these things are notoriously cyclical - we always knew it would eventually resolve more or less regardless of the economic action taken by the various politicians.
The good news also comes along with the 'bad' news that interest rates are set to rise...and fairly soon. Again, we always knew this would be the case, but for those of us who have benefited from low mortgage rates, the reality of the end of the gravy train is just around the corner.
No definite dates as yet, but indications are that the end of this year or possibly early next year will bring a tentative rise in the current 0.5% base rate currently applied in the UK. I expect that it will be several years before the base rate reaches anything like it was before the dramatic drop five years ago.
Of course, I am calling it bad news as a mortgage-payer, but a net investor will be thankful that there is a prospect of getting a better return on investments at long last - also as my mortgage has an element of endowment, there is actually a kind of 'leveling out' of the good news versus bad news scenario even for me.
There is also speculation that this will slow down the property price rises that are starting to kick in particularly in London where housing is so tight, and seeing as it was in part, property prices that led to the original recession, this is possibly no bad thing...

Two basic questions remain then:

'When?' and 'How much?' there is a suggestion in the media that the rise will come before the general election in May 2015, maybe even well before. As for the new level, it will probably be set at 0.75% or possibly 1.0%. A full 1.0% would be more of a bold statement of intent and could be seen as a level that could be maintained longer-term, a mere 0.75% might leave the markets nervous wondering how long before the next 0.25% is added...
For those who have recently bought property on low interest mortgages, a rise in rates will be a new and unwelcome experience - although such a small change in rates is surely not likely to leave home owners without the means to pay their mortgages.
Personally I am currently still overpaying my mortgage, so for me it will simply be a matter of reducing my over-payment so that the overall outgoings remain the same.

Related posts:

Feb 2009 - imminent drop in interest rates
Mar 2009 - base rate set at 0.5%

Economy Update

The latest news is that the UK economy is managing to steer a course around the rocks of a double-dip recession. Standard & Poors have endorsed the UK by retaining their triple A rating, having previously reduced both the USA and France to double A ratings.
Although we are some way from being able to state that the economy is firmly in recovery mode, there are a few green shoots showing through. There are still going to be bouts of closures and redundancies to be endured, but the overall picture is tentatively positive.

Of course, the UK is also still 'enjoying' the extended base-rate 'holiday' as the 0.5% rate is retained for the foreseeable future. Keeping this lower rate as a long-term policy helps to reinforce the 'steady as you go' feeling that has been a feature of the UK economic recovery. Admittedly, it is not great for net investors, but I suspect that there are very few of those around at the moment..!

Bank of England meets this week

Quantitative Easing will be one of the main topics on the agenda with views spilt over whether more is needed in the light of recent tentative signs of economic stability, and uncertainty over the rate of inflation and the impact of oil price rises.

Most observers are not expecting a change to the Bank Base Rate any time soon, which is great news for some house owners (me included). When pushed on when the base rate may be raised, the general view is that rates will be stable at the all time low 0.5% for at least another 18months.

QE and base rate being two of the main weapons in the Banks armoury, it looks like a economic cease-fire might be called sending a 'steady as you go' message to the markets.

More Quantatative easing on the way?

The Bank of England have maintained the base rate at 0.5%, resisting pressure to match the US rate and drop to 0.25%. In the light of general economic doom and gloom, more quantatative easing measures are likely to be considered although no action is planned immediately.

In short, all the signs are that any previously perceived recovery has been long forgotten in the shadow of a potential double-dip recession.

Interest rates could stay this low until after 2012

Financial commentators are starting to speculate whether interest rates will move at all next year (2012). This implication being that it could be 2013 before we see any chance in this unprecedented low base rate. The UK has never seen interest rates held at such a low rate, to sustain this rate for the forseeable future is testament to how seriously the BoE take the crisis, it also indicated that the crisis is far from over.
Nett investors will be pulling their hair out - those with a mortgage will be delighted to hear the news. Those with tracker-type mortgages will be able to continue with thier miniscule repayment rates - even those with fixed rates should be able to negotiate a better deal as the long-term prospects start to look more certain. I would urge those who are making good savings to consider making over-payments (after consultation with a financial advisor of course..) to lower the principle amount of the mortgage. This has the effect of lowering repayments in the long term, and is especially important if, like me, you have an endowment mortgage that will not materialise into a pot big enough to pay the mortgage off in full.
I have used the principal of retaing the level of payments that we were paying about three years ago even though the actual interest payment has dropped dramatically. The extra we are paying is reducing the original debt (principal) which is good for two reasons:
It means the amount raised by the endowment will be closer to the actual amount owed
As the principal is being paid off, the amount of interest keeps falling even when the interest rate is steady.
Of course, one has to bear in mind that the endowment itself will grow in a very restricted rate during this time of low interest, but at least by over-paying whatever happens, we will be doing our best to overcome any of the negative effects. One other thing to bear in mind is that when rates eventually climb again, all the overpayer has to do is reduce the overpayment to maintain the same standard of living. The temptation is to spend the 'extra' money released by low interest rates - which will mean an adjustment of spending patterns when the rates come back up - an adjustment I would rather not have to cope with..

Interest rates remain stable

Despite a growing concern that interest rates will be on the way up, the Bank of England have kept UK base interest rate at 0.5%. This is great news for those with a tracker mortgage, not so good if you are a net investor...
I am continuing with my philosophy of over-paying my mortgage whilst the going is good, in the hope that it will stand me in good stead when my endowment matures. Whatever happens, I am quite sure that it will not do me any harm at all to try and lower the amount I will have to pay back to the bank in about 10 years time...
I anticipate that further measures will be needed before I can be sure that I can cover the full cost of the mortgage, but at least the impact will have been lessened by this bonus period of low interest rates.
The reason that the BoE have not raised interest rates is the continuing doubts about whether the UK economy is strong enough to accept higher rates. Whilst we have avoided double-dip recession this time, there are still concerns that GDP is not growing as was hoped.

Interest Rate warning!

Official figures just released show that the economy is growing at its fastest rate for a decade. Growth over the past six months reached 2 per cent, the fastest pace of expansion over two consecutive quarters since 2000, according to the Office for National Statistics .

Economists warned that the 'good news' could be result in interest rates rising earlier than expected. Andrew Sentance, a member of the Bank of England's monetary policy committee, said "I am in favour of gradually moving interest rates up from their very low level which I think can be done without disrupting business or consumer confidence."

Interest rates have been at historically low levels since the credit crisis took hold, with the Bank of England keeping rates at 0.5 per cent since March 2009. It had been previously reported that there would be little chance of a change before the end of next year, but on the back of yesterday's strong growth figures some economists are now predicting a base rate of at least 1 per cent by the end of 2011.

As always with interest rate rises, the bad news for borrowers is good news for savers. The majority of savings accounts currently on the market fall some way short of offering customers a decent return on investment. Recently I came across a saver who had £11return on a three year bond of £3000.

David Kern, chief economist at the British Chambers of Commerce, reminded us that we have not yet seen the real impact of the Governments deficit cutting measures. True to form, the coalition are claiming the upturn as a result of their actions whilst the previous administration claim that this is as the belated result of their actions... The truth is that few people (from either party) predicted these most recent results, and at the end of the day, the economy wends its own merry way regardless of those that believe they are at the helm of national affairs.

The Recovery

The recent financial crisis is becoming a faded memory, but there are some significant points about what has just happened that will have an impact on the coming years. Oddly enough, during the recession, UK householders actually experienced a significant increase in spending power because of the incredibly low interest rates. Any mortgages that have been linked to the Bank of England base rate have dropped significantly allowing families to ride the storm with comparitive ease (assuming that income has been maintained).
Mortgage rates are not set to move just yet, but it must be accepted that these low rates cannot be retained indefinitely and sooner or later will rise at least part way back to the previous level. THIS is when the impact will start to hit home a little more. Personally I have decided to overpay my mortgage while the level is so artificially low, in my opinion, regarding this boost as avaiable income may be a huge mistake. The rate has been below 1% for nearly 18 months, and I am guessing that this has put a couple of hundred pounds or more into many households pockets during the recession. If this money has been incorporated into the household spending, when the base rates resumes it's previous levels, this extra budget will have disappeared, and spending must follow suit otherwise we may find ourselves exposed to debt.
My own plan is to gradually cut back on the overpayment as the interest rises until I am left with no overpayment. The added bonus of the overpayment is of course, that I am paying off the capital at a faster rate than if I pay the minimum rate that my mortgage demands. The result of this is that the actual interest on the diminishing principal is falling too.
In the light of financial measures that will be taken to resolve the national debt issues, average incomes are likely to be more or less static for the next few years, a rising interest rate may leave families feeling the effects of the recession that they previously managed to avoid.

related posts:
bank rate drops to 1% (Jan 2009)
declining base rate (Feb 2009)
interest rate news (Jan 2009)

Debt Update

Over the years, I have documented how I have brought my own credit card debt down from about £7,000 to round about £1000. I did this using will-power and 0% credit cards, the first of which was a Virgin credit card which had a 16month offer. The trouble is that now it has come down to 'manageable' levels, the debt is threatening to get out of hand again...
At the lowest point last year, the total debt was down to about £600, and now that I no longer have a 0% interest credit card, the total is slowly creeping up again, and I am once more paying interest... albeit very small amounts.
If I am going to completely eradicate, this debt, I am going to need one more 0% interest credit card, and one more effort to rid myself of this burden once and for all. However, a bit like an addict, I must always be aware of the lure of the credit card and must seek to be free of debt for the future not just for now...
My first step will be to make sure my existing credit card accounts are closed if I am no longer using them - This helps to ensure I have a good credit rating, old unused accounts with high credit limits can count against you. The second step will be to compare 0% balance transfer credit cards that are currently available to find the best offer. The third step will be to exercise the will-power to pay off the balance and start saving money.

Credit Cards for the Credit Crunch

I have spoken on many occasions about how I have crawled out of the pit of debt by using 0% credit cards and am now very very close to paying the entire original debt off (although I have recently started to build up a balance on my 'normal' credit card which I will now have to work hard to pay off!!).
I am reminded however about my first application for a 0% card... I saw adverts for the wonderful 'Capital One' card which was advertised on the TV and I decided that this was the card for me. I duly applied and was turned down as I had a poor credit rating which turned out to be due to a number of still active credit accounts I had more or less forgotten about. I got a report from Experian or one of those agencies which listed accounts which, although I had not used them for years, were still having an effect on my creditworthiness.
Imagine you have four accounts each with a £10,000 limit that you no longer use - a potential lender can see that you have potential access to £40,000, therefore if he extends your credit even further, you could end up with debts that are beyond your means... So I took the step of formally closing any accounts that I wasn't using. Generally banks do not reconsider once they have decided not to open an account for you, so I went cap in hand (and with a better credit risk) to the nice people at Virgin Credit Card and they took all my debt and placed it in a 0% account, Hoorah for Richard Branson!
However, that is not the end of the story, Oh no... Capital One were still to play their hand. I had applied to them originally, so they knew exactly how much debt I had - they also assumed that I might not be able to get a 0% deal (if my apparent credit risk remained) so what did they do?? They plagued me for months with offers to lend me money (not at 0% I hasten to add). So not only do they NOT give me the account I wanted, they sought to exploit the knowledge they had about my financial position by trying to get me to take out a loan. There's something suspect in my opinion about a bank that thinks you are not worthy of their credit card, and then proceeds to persisently try and get you to take out a loan, and so I have vowed NEVER to enter into any agreements with Capital One under any circumstances. I do not know that any other banks would have behaved any better, but I know unethical practice when I see it and I firmly believe in voting with my feet so to speak... I also resent the implication that I would be so devoid of alternative plans that I would gladly grasp at whatever crumbs Capital One would throw my way. I have news for Capital One - I have had three o% cards in succession over the last few years and am within £100 of seing a zero balance - and have never even had to consider them as a credit provider in all that time.
For anyone who has a debt like this that is on the verge of becoming unmanageble, my advice is to take the same route and explore the possibility at least initially of getting the debt transferred to a 0% card and paying off what you can during the 0% offer (definitely DO NOT SPEND anything on this card...). When the offer expires, don't let the principle attract interest - move it on to another 0% deal straight away. The psychological boost one gets from seeing every penny of your payments coming off the debt rather than being sequestered away to pay off interest, is tremendous and just the ticket to make you want to pay off as much as you can as soon as you can..

related:
more posts on 0% interest
more posts on credit cards
tracking my debt

Need a new line of credit?

Whilst it is true that credit cards have been one factor in bringing about the Credit Crunch that has wrought havoc on economies over the globe, selecting the right credit card for you can help bring you out of personal financial difficulties.
I will say right at the start, that this advice is not aimed at those who are seriously in debt and struggling to meet repayments - this is for those who are slipping into a 'manageable' debt but would like to be debt free. If you find yourself relying on a credit card for every day purchases like food and consumables, then you may need to seek professional financial assistance.
If you have a small debt that you are determined to pay off then a 0% interest on transfers credit card would be perfect for your needs. I have had three 0% credit cards over the last few years and have managed to shrink a $13000 credit card debt down to around $300 in that time without paying a cent in interest.
In order to do this too, you must be determined to cut out excess spending and certainly to stop using your credit card for purchases - if you do this, then every cent you pay each month will come directly off your debt. If you can't manage to pay off your debt within the 0% interest on transfers period, then you can just switch the remaining balance to another 0% card at the end of the offer.
If on the other hand, you manage to pay your card off every month and have no debt, then you could actually save money by using one of the many cash-back credit cards available. Also worth considering are other incentive and reward schemes such as air miles cards.
The fact is that you can make credit cards work for you if you control your card rather than allowing your card to control you. If your card is not working for you, then ditch it right now and get one that does.

'Bad' credit cards

I have often extolled the virtue of 0% credit cards as a means to get rid of debt and am nearing the point when I can finally be rid of my credit card balance. However, 0% cards are getting harder to come by and are near-impossible for those with a bad credit record. Those with a bad credit record are of course the very people that need a break when it comes to trying to pay off their creditors. So what are the deals that are available for those without a perfect credit record?
Varying from 7.9% up to just under 20% (still very competitive), there are a number of options available in the bad credit credit cards category on BadCreditOffers.com, expert providers for credit cards for bad credit along with other services including home loans for bad credit and bad credit loans.
The site has handy links taking you straight to application forms ensuring that in some cases, a loan or credit card can be secured in minutes. I am just a few payments away from clearing my own credit balance and hope to post about it in about two months time. Getting debt-free is a double positive, not only does it mean you are no longer beholden to a bank, it also frees up money that you have been using to pay off loans leaving you with more disposable income. My personal intention is to ensure that most of my 'disposable' income ends up not being disposed of...

Interest rates down to 0.5%

The Bank of England cut it's base rate to 0.5% today, leaving just 0.5% to play with and personally I don't see that this is going to make a load of difference. True, my tracker mortgage is already below £100 per month, but I won't be spending the difference - I will be over-paying my mortgage as long as the rates are low.
The danger of spending this welcome bonus is that when interest rates rise again (as they must), it will be harder to do without the extra money. I have already set up a standing order to overpay the mortgage, all I have to do is ring up my bank to adjust it if the rates start to rise.
Banks are now threatening to start charging for current accounts, trust the banks to find a way to squeeze the little guy to pay for it's own errors of judgment...
Meanwhile the Treasury is embarking on it's 'quantitive easing' plan which is more plainly known as printing money, £75bn over three months to be precise. This is uncharted territory and could easily be a disaster. I can see exchange rates taking a knock and the stock exchange, both of these markets will be sensitive to what is a radical step by any standards. We await the outcome, but I am not at all convinced that these measures are going to miraculously kick-start the economy overnight.

Related posts:
UK bank rate drops to 1%
Mortgage lenders in trouble
Gordon Brown rescue plan
Is this the new Great Depression?

Interest rates to drop again

Following in the wake of other major economies (US Federal reserve set interest rates at between 0 and 0.25%, Japan set rates at a mere 0.1%), the Bank of England looks set to lower the base rate to 1% or even less. In the rest of Europe, rates are set at 2% and due for another drop next month.
All around the world, economies are setting their lending rate at unprecedented low levels in the hope that the economy will be stimulated as a result.
The threat of increasing the money supply (printing money) is still a possibility, but would have a potentially devastating effect on the exchange rate as the perceived value of sterling would plummet. That might sound like a great benefit for exporters, but when you consider the lack of a manufacturing base, the effect on our imports will be more significant.
The news of the drop in base rate will be welcomed by those who have a tracker mortgage that will follow the base rate.

Related posts:
UK bank rate drops to 1%

Government consider printing more money

Alistair Darling is considering printing more money in an attempt to ease the credit crunch.There is a distinct possibility that the Chancellor and Mervyn King, the Governor of the Bank of England, may try expanding the money supply by billions. The prime aim would be make these funds available to the government to boost the economy.

So this is Gordon's get-out clause then - he can promise to spend billions but may have to devalue the pound in the process and even print the billions he is promising the spend... not quite the brave new Gordon who flew to Europe to persuade everyone to jump on his heroic spending bandwagon.

The real fear is the danger of deflation, NOT a major concern for those who are shopping for bargains if course.. and the decreasing interest rate is plainly having little effect on the economy. In fact the separation between the Bank of England and government has become blurred over the last 18 months far more so than at any time since official government constraints on the BoE were lifted, allowing it to effectively set it's own rates.

There may be uncertainty about the economy and the effectiveness of the interest rate cuts, but there are some certainties about printing money which you can 'take to the bank'.

• Inflation is certain and with increasing unemployment, this is NOT a welcome side-effect.
• Massive and instant devaluation in the pound is likely, making imports hugely expensive - those companies whose business relies on imports are likely to be hit very hard.

Whatever the uncertainties might be, the effects that we know about should make this a non-starter even though the government are being quoted as suggesting that this is a 'sensible contingency..'. I think we have already demonstrated that government actually has very little grip on the economy, and a measure like this could easily send things spiraling out of control. I heard only today that Zimbabwe has had to start printing Trillion dollar notes such is the extent of their inflation...

Don't forget that this idea is from the man who claimed the recession would be a shallow one, this is the man we are trusting with our fragile economy. Apparently he no longer things the recession will be over in 6 months... frankly Alistair Darling, nobody with an IQ of higher than 6 believed you anyway... whether that covers a percentage of the ruling party I just cannot say.

This does however put to bed those rumours about the government taking the opportunity of parity with the Euro, to adopt the European currency... If you are part of a pan-European currency, you won't be allowed to just print your own money to arrest deflation...

Related posts:
Government Intervention
CBI predicts 'shallow' recession
Negative interest rates
Mortgage safety net

Drop in interest rates today

New Rate: 1.5%
As expected the Bank of England announced another drop in base rates to day, taking the rate down to it's lowest ever level at 1.5%. This represents a drop of 3.5% since the beginning of October when base rate was at 5%.
Naturally this will be good news for some householders with tracker mortgages and not so good for those that were enjoying 5% return on their savings 12 months ago. When you take into consideration the global economic climate, a drop in mortgage rate will not compensate for the thousands who will find themselves out of work in the next few months. The hope that these measures will magically stimulate the economy could still be a forlorn one and there is still likely to be another cut in two months time which could well see the rate drop to or below 1%.

Further reading..
interest rate news
can interest go negative?
drop in base rate
UK heads for recession

Interest Rate News

Speculation is growing as pressure builds up on the Bank of England to cut interest rates again on Thursday this week. The only real doubt is whether a cut of 0.5 or a full 1% will take place. This will take the Bank of England base rate lower than it has ever been in its 300 year history. It is hoped that this will release funds for lending to both businesses and the domestic market. The government will also want mortgage companies to pass these new rates on to tracker customers, but there is a growing resistance amongst the banking sector to allow their clients to benefit from these low lending rates. Just because they will be able to borrow at less than 2%, mortgage companies obviously feel that their right to profiteer from the situation over-rides the interests of their clients.
Just to retrace our steps for a few seconds...how did the credit crunch come about? oh yes, it was the banks trying to make money from sub-prime mortgages wasn't it?? So the banks that caused the problem in the first place are now benefiting from huge injections of cash from the taxpayers. The base rate has plummeted to allow more cash into the system, borrowing is now cheaper than it has ever been, and yet the self-same banks refuse to pass on the benefits to their lenders - those same tax-payers who are funding their lavish life-style... I don't want to be overly dramatic, but revolutions have come about with less provocation than this!!

Related posts:
Negative interest rates
Mortgage safety net
When will the property market recover?
sub-prime mortgages to blame?

The outlook for 2009

There is no doubt we are sliding into decline at speed and every indicator points this way. As far as the housing market is concerned, the UK is in the steepest decline ever recorded with prices falling 16% in 12 months back to the level of prices more than four years ago. Spending and manufacturing output is down, and apparently a further drop in interest rates is being considered even though rates are currently the lowest they have been for nearly sixty years. The US is leading the way when it comes to low interest rates, and the Bank of England base rate has never before fallen below 2%. The rumours are that a further cut to take the UK base rate down to around 1.25% is on the cards very shortly with more cuts under consideration for March 2009.

There are no guarantees that tracker mortgages will follow suit, and Nationwide has already announced that it will go no lower than the current level of 2%. There is a clause in most Nationwide tracker contracts which allows them to charge a minimum of 2.75%, this clause was not invoked on the last round of cuts. Several other lenders have also said that they will go no lower than 2%, even though the UK government has urged them to pass on interest rate cuts to clients.