· Rate of housing market slowdown likely to have surprised MPC
· Tracker mortgages still best value for most homeowners
Ray Boulger of Charcol, the UK’s leading independent mortgage adviser, comments on tthe decision by the MPC to freeze Base Rate at 4.75%: “The announcement was entirely expected and it remains a close call as to whether Base Rate has yet peaked. However, even if it hasn’t it is unlikely to increase by more than a further 0.25%. Recent house price indices have shown such a rapid slowdown that, although the MPC wanted to cool the market, they have probably been taken by surprise by the speed at which this has happened.
“This week’s House Price Index from Halifax does not change that position, despite stronger figures this month. One month’s figures should never be viewed in isolation and their last two months’ figures produce an average increase in prices of just 0.4% per month, not significantly stronger than other indices. Most other economic statistics over the last month also suggest the economy is faltering and the effects of this year’s rate rises have not yet fully trickled through.”
Boulger continues: “With interest rates at or close to their peak for this cycle and a very realistic prospect that Base Rate will start falling by the end of next year, trackers and discounts continue to look the right choice for borrowers who don’t need interest rate security. However, two and three year fixed rates are now available below 5%, including several two year remortgage deals with a free valuation and free legals. Thus the price required to buy interest rate security has fallen by about 0.5% over the last three months, as a result of the availability of cheaper funds to lenders following The City’s lowering of their interest rate expectations. We continue to recommend shorter term fixes for those borrowers who prefer interest rate security as even the best fixes for five years or more are likely to look expensive well before the fixed rate expires.”
