Month two of bank rate stability at 0.5%

"Today's decision by the MPC to leave Bank Rate unchanged for the second month running is likely to be the precursor for several more months of the same, with the committee's focus being switched from Bank Rate to how aggressively to implement the Quantitative Easing programme. However, whilst it is difficult to be confident how long Bank Rate will stay at 0.5%, it is likely than when the MPC starts increasing Bank Rate it will move up quite quickly, which could be very uncomfortable for anyone still locked into a variable rate mortgage at that time, especially borrowers whose mortgage payment comfort zone has migrated to their current low payments, comments Ray Boulger of leading UK mortgage broker John Charcol.

Boulger continues, "Borrowers on variable rate mortgages, especially those with any sort of interest only mortgage, should therefore be very aware of the risk of a rapid rise in their payments at some stage, even though that may not happen this year. Switching to a fixed rate for at least 5 years will be the best way for most people to buy protection from increased rates, but the timing of when they should switch will depend on individual circumstances and borrowers should seek advice from an independent mortgage broker.

"Meanwhile borrowers with tracker mortgages and those coming off fixed rates onto what in most cases will be a lower variable rate, should take advantage of the current low interest rate environment to pay down any expensive debt such as credit or store cards, and/or reduce their mortgage, so that when rates start rising again their debt burden will not be so onerous."

What now for the housing market?

Boulger continues, "There has been more positive news on the housing market over the last month, with Nationwide's real, i.e. non seasonally adjusted, house price index showing increases for each of the last 2 months and a net fall of only 0.8% in the first 4 months of this year. Estate Agents have been reporting increased interest from both first time buyers and movers since the beginning of the year, which is also reflected in our figures, and some of that interest is now translating into sales, fuelled by a significant improvement in affordability as a result of a 20% drop in house prices and lower mortgage rates.

"However, the restricted availability of mortgage finance is thwarting a significant number of potential buyers and however affordable the mortgage might be becomes irrelevant if a deposit of at least 10% can't be found. Even with a 10% deposit many First Time Buyers, despite having no adverse credit, are being knocked back because of the very high credit score lenders require to agree a 90% LTV mortgage. Knowledge of the market and lenders' criteria is therefore a key issue. The good news on the mortgage front is that over the last few weeks lenders have been increasing the availability of mortgages up to 80% and 85% LTV, but deals available up to 90% are still thin on the ground. I expect the choice of deals available up to 90% to increase over the next few months but the return of the 95% LTV mortgage is still some way off for most borrowers, although Nationwide offers mortgages up to 95% for existing customers moving home.

"Other positive news for the housing market comes from the RICS monthly survey, which is now reporting the average length of time taken to sell a property is slowly declining and that relatively little new stock is coming onto the market, despite the increased number of forced sales. Furthermore yesterday's Consumer Confidence Index from Nationwide recorded its largest rise for 2 years.

"These are all indications that conditions in the housing market are now improving and I expect the market to stabilise by the third quarter of this year and house prices to show a net fall of only 5% in 2009. However, house prices are unlikely to recover quickly. Redundancies, and the fear of redundancy, will haunt the economy for at least another year and that will be a deterrent to buying for many. It will also be the main reason for the expected sharp increase in repossessions this year, despite improved mortgage help schemes from the Government for people who lose their jobs.

"Looking further ahead the prospect of increases in interest rates, plus lenders' less generous affordability calculations, will inhibit house prices increasing too quickly. "