Matthew Wyles, group development director at The Mortgage Works: “It is encouraging that the Monetary Policy Committee (MPC) made no change to the base rate this month. The case for further rate increases is getting progressively weaker.
“Despite some recent modest strengthening, Sterling remains badly overvalued - particularly against the US dollar and yen and it will continue to be a target currency for carry traders. The housing market, outside the overheated London market, is starting to feel the pinch from the January base rate rise and the current turmoil in the global equity markets can only serve to undermine confidence.
“The January rate move was obviously intended as a stitch in time and a further rise now would not make sense until the MPC have given the last hike sufficient time to impact on the economic data.”
Barry Naisbitt, chief economist at Abbey: "Having surprised financial markets and commentators by raising rates to a five year high in January, it seems likely that the majority of members of the MPC wanted to keep rates on hold while waiting to see what effects their pre-emptive strike has had.
"In addition, the MPC will have weighed up the latest economic news and its implication for inflation. I suspect that the two MPC members who voted to raise rates in February will have again voted in that way. With inflation having fallen back to 2.7 per cent in January and the prospect of it dropping further over the course of the year, as signalled in last month’s Inflation Report, the MPC will be closely watching the news on pay settlements and inflation expectations to assess whether it needs to raise rates again in the coming months."
David Bexon, managing director of SmartNewHomes.com: “The Bank of England’s announcement today that interest rates will be held at 5.25 per cent will send waves of relief across the housing market.
“The average price of a new home fell 1.4 per cent last month as buyers remain cautious following the series of rises experienced towards the end of the 2006 and into 2007.
“Despite rumours of another likely rise in the first half of this year, I would now like to see a period when rates are held, or even reduced to reinstate consumer confidence in the housing market.”
Stephen Leonard, director of mortgages at Alliance & Leicester: "Over recent past weeks there has been growing consensus in the market that the base rate would not rise beyond its current level in March, and today's announcement to maintain it at 5.25 per cent reinforces this sentiment. And while this most recent MPC decision will come as a relief to borrowers, we are not out of the woods yet and we shouldn't be surprised to see at least one further rate rise during the course of 2007.
"The economy is currently growing in line with market forecasts whilst inflation and pay settlements remain the crucial factors to watch. Last month's MPC minutes suggest that further rate rises are very likely if inflation fails to moderate.
"There are currently some good tracker mortgages in the market and for borrowers with the financial flexibility to withstand short-term rate fluctuations, these can offer a great deal. For borrowers looking for more security and control over their finances, a stepped mortgage can give homeowners peace of mind by sheltering their borrowings from possible further base rate increases."
Ray Boulger, senior technical manager at John Charcol:
“This decision, whilst expected, suggests that when the February Consumer Price Index (CPI) is published next week it will not contain any nasty surprises.
“Some more positive news over the last month on the factor the MPC is expecting to be particularly material in bringing inflation down later this year has been the confirmation from some gas and electricity suppliers not only of further significant falls in prices but also reductions being implemented earlier than had been expected. The combination of last year’s increases falling out of the year on year CPI comparison and this year’s decreases will provide a double benefit to the inflation figures.
“Whilst the worldwide turbulence in equity prices over the last fortnight was probably not a major influence in the MPC’s deliberations it will have intoned a note of caution. Possibly more important will have been increasing concern about the US housing market. Over 30 US mortgage lenders have gone bust or got into severe financial difficulties over the last few months on the back of the toxic mixture of house price falls and sharp rises interest rates.
“The impact on an already weak housing market of lenders tightening criteria and seeing funding costs increased, or even having them withdrawn, means the situation is likely to deteriorate further. A weaker housing market will result in a weaker economy and when America sneezes the rest of the world catches a cold. The possibility of a forthcoming depression in the US, which Alan Greenspan rates as a 1 in 3 chance, with its consequent impact on us, won’t have been ignored by the MPC.
“As far as the UK housing market is concerned early signs of a slowdown in the rate of increase in prices are emerging as the impact of the three recent Bank Rate increases puts more pressure on prospective purchasers. In general, purchasers are increasingly reluctant to bid prices up but there is still a shortage of property for sale in many areas. This is likely to change shortly as many people thinking of selling will put their property on the market before the end of May to avoid being forced to incur the cost of a Home Information Pack (HIP).
“Swap rates have declined a little over the last month and the market is no longer factoring in the probability of Bank Rate rising a further 0.5 per cent to 5.75 per cent, but it is still fully reflecting the expectation of one more increase to 5.5 per cent. However, the market often gets carried away and overdoes expectations of Bank Rate movements (both ways) and whilst one more increase to 5.5 per cent is still entirely possible the likelihood of 5.25 per cent being the peak of this cycle has increased.
“A few lenders have reduced the rates on some of their fixed rate mortgages over the last few days as swap rates have fallen. It is now too late too buy a fixed rate mortgage as protection from rate increases, as one more increase in Bank Rate is factored into the rates. However, many borrowers will still prefer a fixed or capped rate for the budgeting certainty and consequent peace of mind they offer.
“For others there is an excellent choice of trackers, with the lowest two-year rate without extended early repayment charges or a very high fee having a rate as low as 4.44 per cent, with a fee of 1.25 per cent. An excellent choice of two-year trackers is available well below Bank Rate and it is even possible to buy a three or five-year tracker mortgage below Bank Rate with no early repayment charges at any time and a droplock option.”
