Base rate held at 5.75% but borrowers must remain vigilant

Borrowers must remain vigilant despite today’s decision by the Bank of England’s Monetary Policy Committee to hold the Base Rate at 5.75%.

While this will come as a relief to people beginning to feel the pinch, there is every possibility this is merely a temporary reprieve.

Although there has been a general slowdown in consumer spending, mortgage approvals and house price inflation over the past month, the worry is that overall inflation has only fallen to 2.4%, which is still above the Government’s 2% target. So, despite five rate rises in the past year, another hike is still very much on the cards, possibly as early as next month. Borrower beware.

But there is some good news. Several lenders, most notably the HBOS Group, have cut some of their rates in order to boost market share — the “Summer Sizzler” season has officially begun. On the residential side, The Mortgage Business has a superb product that is fixed at 5.59% until 31/10/2009, with a reasonable fee of £1,999. This is available up to 85% LTV and on a self-certification basis. For people worried about further rate rises, this is a great way to see out the interest rate curve until rates hopefully begin to fall over the next 18 months.

Meanwhile, landlords are being helped by some incredible buy-to-let loans, such as Birmingham Midshires’ latest offering fixed at 0.76% below the Bank of England Base Rate for three years, currently 4.99%. With rental coverage of 100% at the pay rate, this is a surefire winner.

Andrew Montlake, Partner, Cobalt Capital, commented: “The borrowing landscape is black and white at present. Despite today’s hold, the negatives are further potential rate rises because of inflationary concerns and the fact that are lot of cheap two-year fixed rates are due to expire in the Autumn, exposing more people to higher repayments. The positives are some competitive “Summer Sizzler” deals as lenders battle it out for market share. I expect just one more rate rise this year to 6% before a long period of stagnation and hopefully a cut, although the Bank’s quarterly inflation report issued next week will give us the clearest idea of where rates are headed. My message to borrowers in the meantime is be on your guard.”