Barry Naisbitt, chief economist at Abbey, said: "The Bank of England held rates at 4.5 per cent yesterday, marking the eleventh month in which rates have been left unchanged. While financial markets are worrying about whether the US Federal Reserve is going to raise rates for an eighteenth successive meeting, the Monetary Policy Committee continued to hold a steadier course. With economic news continuing to be mixed, it was no surprise that a Committee of members who all voted to hold rates last month, did so again.
"The interest for commentators and financial markets will be in whether any of the Monetary Policy Committee members voted to raise rates, so changing their view from June."
Moneysupermarket.com has predicted there will be a rise in interest rates before the end of the year.
With rates on an upward trend the usual advice would be for borrowers to opt for a fixed rate mortgage, to be certain in the knowledge they would not see their monthly mortgage payments rise. However, moneysupermarket.com has urged homebuyers not to get caught up with short term rate worry and instead to take a long term view.
With longer-term market uncertainty continuing to push up swap rates, rates on fixed mortgages are also on the rise - even without a recent base rate rise fixed rate pricing has risen by at least 0.5 per cent since August last year. For example, First Active has increased its fixed rates four times in as many weeks, from 4.49 per cent to 4.69 per cent to 4.85 per cent and now to 4.99 per cent.
Taking that into account and working on the basis that over next two years the base rate remains stable around the 4.75 per cent mark it would be silly to suggest that all homebuyers should automatically opt for a fixed rate – especially as better value can currently be found in the tracker market.
Louise Cuming, head of mortgages at moneysupermarket.com, said: “It’s not always as clear cut as fix or tracker. What people should be asking themselves is whether they are already at the top level of affordability when it comes to their monthly outgoings. If so, and if even a small rise is base rates would stretch this, then they would be wise to opt for a fixed rate. If they have some leeway available then they would be better off with a tracker because, ultimately, all the pointers indicate that rates are unlikely to rise significantly in the next two years.”
