Sir Mervyn King bids farewell as Governor of the Bank of England

This weekend, Sir Mervyn King brings to a close his ten-year tenure as Governor of the Bank of England, the institution he joined in 1991. His successor, the Canadian Mark Carney, previously Governor of the Bank of Canada, takes over on Monday.

At his final hearing before the Treasury Select Committee earlier this week, Sir Mervyn made it clear that it was too early to start talking about raising UK interest rates or ending the Bank of England’s Quantitative Easing (QE) programme, despite the US Fed’s recent hints that it could soon start winding down its own QE programme of buying Government bonds.

Although he said that people have “jumped the gun” in predicting an imminent return to normal levels of interest rates, the turmoil in financial markets over the last few days – in reaction to the comments from the US Fed – has resulted in a jump in swap rates. This means we may see some upward pressure on mortgage rates in the near future and we’ve already seen a few lenders increase fixed rates this week.

On his recent appearance on BBC Radio 4’s Desert Island Discs, Sir Mervyn said that he would shortly be enjoying a ‘gap year’ but before he does, here’s a quick look at how UK interest rates have fared under his reign at the Bank of England. With rates having been stuck at 0.5% for over four years now – borrowers and savers will be keeping an eye on what happens when the new Governor takes office..

Meanwhile, mortgage rates have followed a slightly different path over the last ten years – affected by a lending boom up to 2007 and the subsequent credit crunch and banking crisis. Here’s a quick then-and-now with a best buy 5-year fixed rate from June 2003 compared to a current best buy deal..

Tesco Bank rate: fixed at 2.49% until 31/08/2018, 4.24% thereafter. Overall cost for comparison (APR) is 3.7%. Early Repayment Charges until 31/08/2018.

The current rate is cheaper by a decent margin but it’s a lot smaller than the 3% margin between Base Rates. Also, note the difference in fees – an example of how mortgage arrangement fees have risen over the last 10 years. It’s also worth mentioning that the deal in 2003 was available all the way to 95% loan to value (LTV) – compared to 60% for the current Tesco Bank deal. I’m sure many hopeful first time buyers now would love to get the lowest rates around with just a 5% deposit!


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