The cost of debt – base rates here and abroad

October 20th, 2009 Admin Leave a comment Go to comments

Tomorrow, the Bank of England`s Monetary Policy Committee (MPC) will start its two-day meeting to discuss changes to the base rate, which affects everything from the cost of debt to the reward for saving.

Here in the UK, the base rate has stood at its all-time low of 0.5% since March 5th. As a result, savers have seen lower returns on their savings, but many people with debts have been better off – especially homeowners with tracker and variable-rate mortgages, whose rates have dropped with the base rate, drastically cutting the monthly cost of repaying their mortgage debt.

Economists are, as the Guardian puts it, `united in predicting that rates will be left unchanged at 0.5%` when the MPC announces its decision on Thursday at midday.

Looking abroad, the UK base rate is lower than the European Central Bank`s rate (1%), but higher than the rate in the USA (actually a range, of 0% – 0.25%). Basically, central banks are keeping their rates low until their economies improve.

In Australia, though, it`s a different picture. Australia has become the first rich country to raise its interest rate, taking it from its 49-year low of 3% back up to 3.25%.

Unemployment in Australia is lower than expected, house prices have risen steadily recently, and the economy actually grew by 0.6% in the second three-month period of the year.

According to the Guardian, the Reserve Bank of Australia said that further rises were likely in the months ahead – to prevent the economy expanding too quickly.

“Many savers in the UK will be watching the MPC`s decisions closely in coming months,” said a spokesperson for Debt Advisers Direct, “waiting for the rises that could boost the returns on their savings.

“As for the cost of debt, people with tracker mortgages could well be the most directly affected by the base rate decisions. Any rise in the base rate will add to the cost of servicing their mortgage debt – and that could be particularly hard for households that are already struggling with other debts.”

Debt Advisers Direct offer free debt advice and a range of debt solutions, including debt management plans, debt consolidation loans and IVAs (Individual Voluntary Arrangements).

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