Homeowners with mortgages should not expect a return to the ultra-low interest rates enjoyed in the aftermath of the global financial crisis, Lloyds Banking Group PLC (LSE:LLOY) boss Charlie Nunn said.
The chief executive of the UK's biggest lender also said that whichever party wins next week's general election will be extremely limited in how much they can invest due to increased levels of government debt in recent years.
"We should just accept the government can't pay its way out of this next stage," he told Sky News.
The UK is not the only country to see its government debt swell in recent years, but Nunn said the US in particular can pay its way out as even though its ratio of public deficit to GDP ratio has risen to 7.5%, the economy is growing at above 3% and the US dollar has a unique position as the world's reserve currency.
Nunn pointed out that once the Bank of England cuts interest rates, the short-term impact will reduce the cost of government debt and make the cost of borrowing for businesses short term more attractive, but will "take longer to feed through" to an impact on UK consumers.
After a decade where mortgages have been in the 1.5-2.5% range, he noted that the market doesn't expect the Bank Rate to fall below 3.5%, meaning mortgages, "or the new normal for mortgages, will be in that 3.5-4.5% range, not 1.5-2.5%".