Nationwide cuts fixed rate mortgages as Bank of England mulls rate rise

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Nationwide has revealed it is to offer reduced fixed rate mortgage deals from Tuesday, just days before the Bank of England is tipped to raise interest rates.

The country’s biggest building society said it was shaving up to 0.5% from its current fixed rate offerings to bolster its competitiveness but admitted other customers faced the prospect of increases to their monthly payments as a rate hike would usually suggest.

Nationwide said it wanted to provide some clarity to its members in anticipation of the possible rise in the cost of borrowing on Thursday when the Bank’s monetary policy committee (MPC) makes its next interest rate decision.

Bank rate was cut to 0.25% in August last year from its financial crisis level of 0.5% when policymakers judged the UK needed additional stimulus to prevent a possible stalling of the economy after the shock Leave win in the EU vote.

The ‘trade-off’ facing Bank on rates

The Bank has since signalled it is now minded to tackle rising inflation by bringing interest rates back to 0.5%.

:: Rate hike could hurt ‘fragile economy’

Nationwide said that should Bank rate be raised, its variable mortgage rate customers would see their rates rise in line with the Bank of England’s hike.

It also confirmed that savers, who had their rates cut by 0.25% in August 2016, would have their rates restored to pre-Brexit vote levels.

Financial markets and many economists see the Bank carrying out a ‘one and done’ exercise on Thursday – sparking a flurry of rate activity on financial products.

They see its first interest rate rise in a decade giving the MPC some wriggle room to cut rates again should the economy sink sharply.

Bank of England keeps interest rates at record low

Bank of England will be ‘cautious’ on rates

:: Interest rate rise looms after lift in economic growth

There was surprise last week when early figures suggested the UK economy had grown by a faster-than-expected 0.4% in the third quarter – led, as ever, by consumer spending.

Figures released earlier on Monday by the Bank of England showed unsecured borrowing still growing at an annual rate of 9.9%.

But housing market activity remained subdued as mortgage approvals fell for the second month in a row.

Howard Archer, EY ITEM Club’s chief economic adviser, said: “Housing market activity remains under pressure from the serious squeeze on consumers, fragile confidence and appreciable caution over engaging in major transactions.

:: Homeowners ‘lock in’ low mortgage rates

“A likely Bank of England interest rate hike on Thursday may very well also weigh down on housing market activity.

Nationwide’s executive director of products and propositions, Chris Rhodes, said of its decision to announce rate changes already: “With a Bank Rate rise anticipated, we have decided to take early steps to offer improved mortgage products, while at the same time announcing the impact on members’ mortgages and savings rates.”

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