Base rate on hold: could loan rates benefit?

By Joel Stanier

Following the Bank of England's latest inflation report, it is widely believed that the UK base rate could be held at 0.5% until 2013 - potentially good news for borrowers.

Bank of England Governor Mervyn King hasn't gone as far as US Federal Reserve Chairman Ben Bernanke in pledging to keep rates low until 2013 - but analysts believe that forecasts for inflation indicate that it will be a long time yet before the base rate is increased.

So what does this mean for the average consumer? For one, homeowners on tracker and variable-rate mortgages should benefit, says an expert at financial solutions company Think Money.

"There has been some doubt in recent months over when the base rate could rise, and many homeowners have opted for a fixed-rate mortgage deal to protect themselves. But those who have stuck with a tracker mortgage could continue to benefit from low rates for much longer than anticipated.

"It's possible that a low base rate in the long term could encourage lenders to offer even lower rates to consumers in the coming months."

Interest rates on personal loans, credit cards and overdrafts might also fall if the base rate stays low, he added.

That could be especially good news for people who want to consolidate existing debts - with a debt consolidation loan, for example - particularly if many of their debts carry a relatively high interest rate.

On the other hand, the record-low base rate is likely to mean continued poor returns on most savings accounts, with many savers' deposits growing much less quickly than a few years ago.

Tags: loan, loans, mortgage, mortgage, tracker mortgage, fixed rate mortgage, variable rate mortgage, base rate, interest, interest rate, inflation, Bank of England, debt, debts, debt consolidation loan

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