This month Mervyn King achieves his aim of being boring

"Today's decision by the MPC to leave Bank Rate and the Quantitative Easing programme unchanged was widely expected but next month the committee will have to consider whether to utilise the final £25bn The Chancellor has authorised for Quantitative Easing", comments Ray Boulger of leading UK mortgage broker John Charcol.

Boulger continues, "Although a few lenders increased the maximum loan to value at which their best rates are offered during the last month, others have either increased the rates on their fixed deals, particularly those lasting longer than 2 years, or withdrawn some of their deals completely and some have in fact done both. This partly reflects a small increase in swap rates but a more important factor for lenders appears to be a need to restrict the volume of new business.

"Maintaining service standards is the often reason given for this, and everyone agrees this is very important. However, there is no shortage of experienced mortgage personnel in the market at the moment and so lenders will have had no trouble staffing their back offices at the levels necessary for the amount of lending they want to do. Therefore, the basic reason for rates increasing or disappearing completely is to avoid exceeding the amount of lending the lender is willing and able to do, taking account of, among other things, commitments given to the Government and capital constraints.

"Despite the Bank of England having used about £75bn of the funds it has agreed to commit under its Quantitative Easing programme it is hard to see any visible impact of this so far in terms of any real increase in mortgage availability. It may be that with the housing market performing better than virtually all the forecasts at the end of last year, albeit with activity still at an historically low level, the modest extra mortgage demand this has generated is enough to be the straw that breaks the camel's back.

"With no slack in the amount of mortgage funding available and lenders currently having no ability to easily increase the amount of money they have available to lend, the only ways they can restrict demand are the time honoured methods of putting up their rates or withdrawing products. The former has the bonus side effect of increasing their margins and until the Residential Mortgage Backed Securities market reopens it is difficult to see where any significant additional funding is going to come from, apart from The Government.

"What is making matters worse is that the FSA now requires building societies to stress test their balance sheets for, among other criteria, a fall of a further 50% from today's levels of residential property prices. Such an Armageddon type test might have been appropriate at the beginning of the credit crunch but this is a classic example of a regulator on the back foot because of earlier failures and now overreacting, just as some confidence is returning to the residential property market. Such an onerous stress test reduces lenders' ability to lend and thus compounds the supply-demand imbalance in the mortgage market."

What should borrowers do now Ray?

"It remains very uncertain how long Bank Rate will stay at 0.5% but what one can be certain of is which way it will move when it does change. A new tracker mortgage will generally start off at least 1% cheaper than a comparable fixed rate but most trackers have early repayment charges (ERC). This is a problem because it means that for many borrowers the initial saving with a tracker will be more than wiped out by the ERC if they want to switch to a fixed rate within, say, the first two years.

"A fixed rate for at least 5 years will be needed to protect borrowers from the next upward interest rate cycle but it is important to be aware that swap rates, and hence the cost of fixed rate mortgages, will increase before Bank Rate does as the market nearly always anticipates increases, including some that never happen! Therefore for most borrowers we continue to recommend a 5 - 10 year fixed rate. Borrowers who prefer a tracker should choose one with either no ERC or only a small one.

"Woolwich has the market leading tracker for borrowers who want at least £200,000 but no more than 60% LTV, at Bank Rate + 1.99% for term, with a fee of £1,499 and an ERC of only 1% for 3 years and as a bonus it is an offset mortgage. Alternatively HSBC has a range of trackers up to 90% LTV with no ERC. An alternative is a tracker with a droplock option, which allows borrowers to switch into one of the lender's fixed rate mortgages without incurring the ERC. Nationwide is the only lender currently offering this feature and its three year tracker offers the best value. For specific individual advice borrowers should speak to one of our independent mortgage advisers."