Bank rate freeze

Rate hold suggests January Consumer Price Index and Quarterly Inflationary Report not too negative.

Ray Boulger of John Charcol, the UK’s leading Independent Mortgage Adviser, comments on today’s decision by the Monetary Policy Committee (MPC) to hold Bank Rate at 5.25%.

“This decision suggests that the two key pieces of information the MPC will have had access to, but which are not yet in the public domain, are not causing too much concern. The January Consumer Price Index (CPI) and the Quarterly Inflation Report will have been key factors in the MPC’s decision.

“The MPC commented in last month’s minutes on the expected fall in energy related inflation later this year, as a result of a combination of last year’s increases falling out of the year on year comparison and decreases in prices this year. British Gas’s announcement this morning of early cuts in both electricity and gas prices provides additional comfort in this respect. The recent increase in the oil price back up to just under $60 a barrel is unhelpful but, providing the its price doesn’t climb too much further, there is still scope for more price cuts to reflect the earlier falls in the oil price.

“There are already some early signs of a slowdown in the rate of increase in house prices and last month’s shock rate rise, coupled with talk of another increase, is putting further pressure on prospective purchasers. We noticed a much higher proportion of clients asking for a fixed rate mortgage after last month’s rise than after either of the previous increases, no doubt partly due to the shock tactics. The housing market doesn’t need a further increase in Bank Rate to slow it down, with Nationwide showing a 0.3% fall in real house prices for January, although the reported seasonally adjusted figure was a 0.3% rise.

“The fact that the MPC held Bank Rate today at 5.25% indicates that any short term inflationary pressures, which will no doubt become apparent when the January CPI and Quarterly Inflationary Report are published, are not too pressing in the light of the positive inflationary expectations we already know will impact later this year. No doubt the MPC will also have taken into account the fact that much of the impact of the last three increases, particularly November’s and January’s, is still to be reflected in the various statistics.”

What should borrowers do now?

Boulger continues: “Borrowers who think that Bank Rate will rise to at least 6%, and those who just want or need the security of knowing what their monthly payments will be, still have a few short term fixed rates to choose from below 5%, but all clean or non stepped fixed rates for more than two years are now priced in excess of 5%. Indeed, only this week two major lenders with very competitive fixed rates pulled them only four days after they were launched!

“There is a far better choice of trackers, with the lowest 2 year rate without extended early repayment charges being as low as 4.44%, although this rate has a 1.25% fee. Overall there is still an excellent choice of 2 year trackers around 5% and 3 and 5 years trackers, including some with both no early repayment charges at any time and a droplock option, at around 5.25%.

“For borrowers who would like some interest rate protection but don’t want to lock into a fixed rate at current levels either a fixed rate with no early repayment charges at any time or a capped tracker or capped discount offers a good compromise, although only a few lenders offer either of these products. The best of the current deals are from Coventry, Skipton, Marsden and Woolwich. See table attached for details.”