Six out of 10 mortgages are fixed rate and therefore will not be affected after the Bank of England raised core rates for the first time in a decade, the chief monetary policymaker said.
And even after today’s interest rate hike, many people will move on to lower fixed-rate deals as more expensive two- and five-year fixes come to an end, he added.
Speaking after the rate rise was announced, Carney said: “Households are generally well positioned for a rate increase. More people are in work than ever before. Only about a fifth of people with mortgages have never experienced a rate increase.
“Of those, almost half of those, took out their mortgages after the FPC introduced its affordability stress in 2014 – and I’ll remind you that that affordability stress requires mortgagers to be able to withstand an increase in their mortgage rates to around seven percentage points.”
Pass on savings rates
The governor said he expected banks to pass on the rate rise to customers and would watch movements “closely” – an apparent warning shot to lenders that raise mortgage rates but do not lift returns on savings.
The Bank’s Monetary Policy Committee (MPC) raised the base rate amid fears inflation would surge further above the 2% target. But further hikes are expected to be gradual – the MPC has predicted two more rate hikes in the next three years, taking interest rates to 1%.
However, Carney warned Brexit or any other big changes to the economy could blow monetary policy off its current path.
He said: “Inflation is unlikely to return to the 2% target without some increase in interest rates. Of course, these aren’t normal times.
“Brexit will redefine the UK’s relationship with our largest trade and investment partner.”