Bank of England holds base rate again
Craig Elliott from Mortgage Advice Bureau comments on the latest base rate decision.
The Monetary Policy Committee (MPC) once again surprised no-one retaining the Bank Base Rate (BBR) at 0.5% for February resulting in the BBR remaining unchanged for the 11th consecutive month and also as expected announcing that they have ended the Quantitative Easing programme for the time being.
The wider UK economy has recently reported a modest return to growth in the final quarter of 2009 but the 0.1% rise in the nation’s gross domestic product was short of most forecaster’s expectations and suggests that the recovery will be slow and difficult for the foreseeable future.
With the growth figures below par it is more likely that the MPC will be reluctant to raise interest rates in the short term for fear of derailing the economy and tipping it back into negative territory but most expectations are that rates will have to rise and many economists suggest a bank base rate rise during 2010.
January and early February has continued to see the major mortgage lenders competing for business and this is evidenced by the rise in the number of mortgage products typically available to intermediaries rising to a 12 month high of more 3,500 deals.
Not only have the number of products increased quite significantly but many lenders have been re-pricing and cutting rates weekly and some twice weekly demonstrating that they are increasingly looking for business and this is resulting in some great deals out there for buyers and those looking to refinance their current arrangements.
With the Skipton B.S recently announcing their decision to raise their standard variable rate (SVR) from 3.5% to 4.95% and several other lenders following close on their heels (and using the negative press that this generated to deflect their own announcements) many borrowers will now be looking more closely at their re-mortgage options available to them. This decision by the Skipton and others demonstrates that even though we have had no change in BBR lenders have to make commercial decisions concerning interest rates and these can be applied without warning and can prove costly for borrowers.
In the last month we have seen a small increase in the proportion of business that is re-mortgage and we would expect to see this continue for the following reason.
Most mortgage borrowers will want to have an element of certainty regarding their monthly repayments. They can do this by fixing their mortgage (generally for a finite period, 2, 3 or 5 years) or by linking their mortgage to an indices like the BBR via a tracker mortgage. In the case of a tracker deal this means that their repayments will change but only by the amount of increase (or decrease) in the BBR.
Several lenders do have SVR’s where the rate of interest charged is linked to a specific margin differential over the BBR as in the case of C&G where their SVR is currently no more than 2% over and above the BBR. Where a lenders SVR has no guaranteed linkage to the BBR borrowers are very much at the mercy of the lender as demonstrated by the recent Skipton decision and as a consequence we would expect and encourage more borrowers look to investigate the re-mortgage options that are potentially open to them. With Nationwide recently reporting that average house prices have risen by more than 8% in the last twelve months many more borrowers will have seen their equity levels restored allowing them to take advantage of some very competitive re-mortgage deals now available.
For further information to see how the latest base rate decision affects you, contact Craig Elliott from Mortgage Advice Bureau.
07921150637, craige@mab.org.uk
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