Katie Tucker, of John Charcol, commented: “Finally some respite from the ever upwards storming of fixed rates is in view. The swap rates that guide the price of fixed rates have been dropping over the last week and lenders have started to re-price downwards to reflect this. Opinion is split as to whether the MPC will see fit to impose another Bank rate rise in September, so borrowers should be putting themselves in the best position for either.
“Whilst it is encouraging to see inflation fall, the recent drop from 2.4% to 1.9% is steep, and it would not be surprising to see it creep back over the magical two percent mark again next quarter to even out. The summer floods have seen agriculture and other businesses suffer considerably, and the rebuilding of these will be doubly hard if credit continues to be scarce following the crunch in the US non-conforming market. All of this will keep the cost of borrowing high, so another rate rise is not completely off the cards. However, we expect to see between five and seven hundred thousand borrowers remortgage from fixed rates to a higher alternative before the end of this year, which will have a knock-on effect on the rest of the economy, including high street spending. The most important factor in the decision is that the Bank rate hikes thus far have by no means had their full effect yet, so it would not be unreasonable for the MPC to hold off a further increase until the waves have actually reached the shore.”
