The Times - UK (2022-03-18)

16 2GM Friday March 18 2022 | the times

News

Mortgage holders will feel the pinch
from higher interest rates but savers
may not fully benefit from the same
rise in returns, experts have warned as
the Bank of England raised rates to
pre-pandemic levels.
The interest rate has returned to
0.75 per cent, up from a historic low of
0.1 per cent set in 2020, after three con-
secutive rate rises by the central bank.
The Bank’s rate setters are under pres-
sure to contain inflation, which hit a
30-year high of 5.5 per cent in January.
About two million homeowners on
variable mortgages face higher monthly
payments as a result of the rate rises.
Lenders have been slow to reprice
mortgages despite the repeated rate
rises but no longer have the scope to
absorb the increase in their margins,
analysts have warned.
Andrew Wishart, a senior property
economist at the Capital Economics
consultancy, said borrowers should
expect a sharp rise in mortgage rates
over the next year. In February, banks’
margins fell to their narrowest since
2007 so it is likely lenders will “rebuild
their margins a little as they reprice
mortgages to account for the sharp rise
in market interest rate expectations in
recent months”, he said.
Sir Howard Davies, chairman of the
NatWest banking group, which has
19 million personal and business cus-

PHIL WILKINSON/ALAMY

Homeowners hit by

interest rate rise

tomers, said before the Bank’s

announcement that there will be “some

pass-through” of the higher interest

rate to savers but it is unlikely to be

passed over in full. “The market is very

competitive at the moment,” he said.

Davies, deputy governor of the Bank

between 1995 and 1997, said interest

rates may end up higher than they

would have been had the Bank acted

earlier last year to tackle price rises.

The Bank’s monetary policy commit-

tee voted to raise rates by 0.25 percen-

tage points in yesterday’s meeting,

warning that inflation could enter dou-

ble digits before the end of the year.

Inflation is expected to reach 8 per

cent next month, far higher than the

Bank’s 2 per cent target, but the Bank

warned it could climb “several percent-

age points” higher in October when

people receive their gas bills, which are

calculated based on energy prices in the

first half of the year. The utility price

cap, which is due to rise by 54 per cent

in April, could again be “substantially

higher” when it is reset in the autumn.

British households face the biggest

squeeze to living standards in decades,

with take-home pay set to fall by more

than five times the amount it did in the

aftermath of the financial crisis of 2008.

Raising rates increases the cost of

borrowing and offers a higher return

on savings. It is intended to encourage

people to save rather than spend,

reducing demand and, in theory, prices.

Bank signals caution, Business, page 35

Arthi Nachiappan
Economics Correspondent

Stitches in time Grayson Perry’s Life of Julie Cope tapestries have gone on display in Gallery 1420 at the Great Tapestry of

Scotland visitor centre in Galashiels. The 2015 works tell the story of the life and death of a fictional “Essex everywoman”

Care sector faces £850m gap in funding

Chris Smyth Whitehall Editor

Care homes face an £850 million black

hole this year because of Boris John-

son’s pledge to bring down fees for the

middle classes, councils warn.

Currently people funding their own

care home places are charged about

40 per cent more than those paid for by

councils, meaning they can pay more

than £200 extra per week. From Octo-

ber, all residents will have the right to

pay local authority rates. However,

cash-strapped councils have driven

down rates so much that care homes

fear they will go bust without this

middle-class subsidy.

Ministers are promising £378 million

for councils to introduce a “fair cost for

care” for residential homes but calcula-

tions for councils by LaingBuisson, the

health analysts, conclude that the

policy will actually cost £1.2 billion.

William Laing, its director, said: “The

central government money earmarked

to enable councils to pay a fair cost for

care is clearly inadequate, with the risk

of severe unintended consequences

including the destabilisation of the care

market in some areas.”

It is unclear who will make up the

difference, with councils saying they

will have to make big cuts elsewhere if

they are expected to find the money

and care companies saying homes will

have to close if they lose the revenue.