In an interview with The Daily Telegraph, Paul Fisher, the executive director of markets and a member of the rate-setting Monetary Policy Committee (MPC), said central bank policymakers would like rates to increase as much as tenfold from their current historic low of 0.5pc as soon as possible.
No, this doesn\’t mean that mortgage rates are about to rise tenfold.
According to separate Bank data, variable rate homeowners are paying interest of 3.28pc on average compared with 4.34pc for those on fixed rates…
It means they might triple though.
Banks don\’t make their money off the total interest paid. They make their money off the difference (minus credit losses of course) between what they borrow at and what they lend at. The margin.
So, if base is 0.5% and floating rates are 3.28, then base rates rise to 5%, we might expect mortgage rates to move to 8.78 %.
This isn\’t an exact calculation, I am not a financial adviser, take this at your own risk etc.
But as an illustration it\’s good enough. Me, I\’m going to be doing a little more freelance work I think (I am indeed one of those lucky people who can pick up extra work as and when desired) to pay down the mortgage a little faster I think.