Ray Boulger, of John Charcol, said: “Today’s decision by the MPC is the first in many months that will bring cheer to the UK’s mortgage borrowers. A simple hold would not normally bring sighs of content around the country, but today’s decision may well signify that rates have reached their peak and that the next movement in bank rate will be downward, albeit not until next year.
“Some very encouraging news last month came from the minutes of the last MPC meeting, which highlighted the fact that most of the impact from the previous five bank rate rises has still yet to be felt in the housing market. This is primarily because many borrowers have been sheltered from rises, safe in the hands of a short term fixed rate deal. As borrowers progressively come to the end of their fixed rates and about 75% are on 2 year deals, the cumulative impact on consumers will increase significantly. Even without another bank rate rise there is still plenty of pain to come in the property market.
“The other recent helpful news on the interest rate front is the rapidly developing contagion spreading from the sub-prime mortgage problems in the US. This has made investors increasingly nervous of buying Bonds that are not absolutely top quality. The resulting so called “flight to quality” has pushed gilt yields sharply lower, and although the spread between gilt yields and swap rates has widened, swap rates have still fallen.
“Whilst predicting interest rate movements is far from an exact science, I would say that the argument for the current 5.75% being the peak is now stronger than the one that calls for more rises.”
Jonathan Cornell, technical director at Hamptons International Mortgages, commented: “The MPC’s decision to hold the base rate at 5.75% this month is not surprising. The vast majority of City analysts predicted it would remain static following last month’s increase; however, their decision must have been further swayed by considerations for the monetary expense of recent flooding across vast areas of the UK.
“With reports highlighting a gradual slowdown in house prices, it appears, dare I say it, that the last five rate hikes since August 2006 might be starting to have an effect upon inflation and the housing market.
“However, despite the decision to keep the base rate at 5.75%, speculation among City analysts that the base rate will reach 6 per cent by the end of the year grows ever more intense.
“Such speculation will increase insecurity among borrowers and force lenders to continually adapt mortgage deals in an attempt to offer competitive rates. However, it is now very noticeable that ‘best buy’ deals of today are non-comparable to the ‘best buy’ deals of this time last year, and while lenders may attempt to keep rates as low as possible, arrangement fees creep ever higher.”
Stephen Leonard, director of mortgages at Alliance & Leicester, said: "It has been 12 months since the Bank of England started to put rates up after a year long run of maintaining them at 4.50%. With rates now more than one per cent higher than this time last year, this pause will come as a welcome break for homeowners and borrowers.
"It was widely anticipated the rates would remain at 5.75% for August, especially after the quarter per cent rise last month and continued uncertainty within the financial markets over the funding of leveraged buy-outs, stock market volatility and the potential losses that are now emerging out of the US non-conforming mortgage market.
"For borrowers with high levels of affordability, tracker mortgages continue to offer good value in the current interest rate environment. We would have to see another one or two rate increases for tracker mortgages to reach the current rates offered on many fixed products. However, borrowers opting for a tracker mortgage need to be financially comfortable enough to withstand an increase in monthly payments should there be any future rate rises. Alliance & Leicester has a competitive 2 year base rate tracker priced at 5.44% and we have a very competitive low-start 2 year fixed rate at 5.34%. We also have excellent FeeSaver deals which are ideal for first time buyers who want to minimise up-front fees."
