John Charcol: Bank rate stays at 5%

Ray Boulger of John Charcol, UK independent mortgage adviser, comments on today’s decision by the Monetary Policy Committee (MPC) of the Bank of England to hold Bank Rate at 5%: “An unchanged Bank Rate today was a foregone conclusion and it currently looks as if next month’s meeting will produce the same result. Last month’s set of economic statistics have mainly been either neutral or indicate that no further rise in Bank Rate is needed in the foreseeable future, especially the very weak Industrial Production figures announced yesterday. The recent sharp rise in sterling against the dollar is another material reason for not increasing Bank Rate.

“The unexpected news from the minutes of last month’s meeting that two members, including Deputy Governor Rachel Lomax, voted against the increase to 5%, coupled with Rachel Lomax’s recent speech highlighting the risks to the economy of raising interest rates too far, encourage the view that 5% will prove to be the peak in this interest rate cycle. “Governor Mervyn King’s comments in his recent appearance before the Treasury Select Committee also gave no encouragement to the view that Bank Rate would rise again any time soon. A combination of all these factors suggests The MPC will be prepared to wait some months to see the impact of the two recent Bank Rate rises before seriously considering another increase.”

What should borrowers do now?

Boulger continues: “For those borrowers who don’t need the interest rate security provided by a fixed rate mortgage trackers continue to look attractive and a tracker with a droplock option provides an added benefit for borrowers who would consider a fixed rate if their rates fall. A droplock feature allows borrowers to literally drop the tracker rate and lock into a fixed rate deal as and when they are either advised or decide to. Another option worth considering for borrowers who want some interest rate protection but don’t want to miss out if Bank Rate falls back towards 4% is a capped tracker, with the best value being offered for 3 and 5 years by Coventry Building Society and Marsden Building Society."