Bank of England leaves interest rates unchanged

Yesterday the Bank of England’s Monetary Policy Committee voted to maintain interest rates at 5.5%, to the surprise of many economists who had been predicting a further drop following that made in December. Until the minutes of the meeting are published later in the month it remains to be seen how close the vote was, but the general consensus is that it may have been the closest in the decade since the Bank was given control of the decision in 1997.

What does this mean for consumers? First and foremost that the cost of borrowing remains unchanged. A quick look at any number of online financial forums reveals a largely negative response from consumers at the decision, with many claiming themselves on the brink of financial disaster thanks to their near-unmanageable mortgage costs. What strikes me most about this, is that many people seem to believe that it is up to the government to step in and drop interest rates in order to keep them from toppling into the void due to their own levels of over-indebtedness.

Homeowners who have bitten off more than they can chew during the property boom should not expect this sort of support from the government, whose main focus is maintaining the economy as a whole. Dropping interest rates dramatically can have an equally negative effect on the housing market in the long term; as borrowing becomes more affordable more people enter the market, demand eventually outstrips supply and the result is increased prices and inflation – something that is already worrying many experts.

While interest rates remain high, homeowners struggling with their repayments should look to cut their outgoings in other ways, such as through remortgaging for an option that will allow them to take better advantage of an interest rate drop when it eventually comes. Check out the range of tracker mortgages available from your lender and compare them with other options available in the market – I think one of the best buys at the moment is the Lloyds TSB 2-year tracker mortgage. Another option is to consider consolidating other high-interest forms of borrowing such as credit cards onto an interest-free alternative – such taking advantage of interest-free balance transfer credit cards. Secured loans also offer a relatively cheap option in comparison to unsecured lending, providing another opportunity to cut the interest you are currently paying on existing debts. All of these options are widely available, and as a homeowner you are more than likely already a prime candidate and in a better position to obtain more affordable credit than many others. Use a free comparison service that compares the whole UK market and find the product at the price that suits you best in order to grab a bit of breathing space until the interest rate drop finally does arrive.

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