Homeowners with long-term loans enjoy a rate hike pause

Marion Dakers
INTEREST rate growth on mortgages steadied in May, according to Bank of England figures out yesterday – though economists warned this is likely to be a temporary and uneven pause in the long-term rise in rates.

Homeowners with the riskiest loans saw a jump in rates last month. Banks and building societies offering a two-year mortgage with a 90 per cent loan to value ratio hiked rates 25 basis points to 6.04 per cent last month – up from 5.45 per cent in January.
But rates on a five-year mortgage with a 75 per cent loan to value fell two basis points to 4.27 per cent, just 11 basis points higher than at the start of the year.

The average interest rate on cash ISAs, meanwhile, remained at 0.66 per cent, up just 11 basis points in the year to date.

“With banks yet to pass on fully their rises in funding costs, this pause is only likely to be temporary – hence the comments from two MPC members this week that the Bank should be thinking about doing more to alleviate tight credit conditions,” said Capital Economics’ chief UK economist Vicky Redwood.