Mark Chilton, Chief Executive of Purely Mortgages comments on Bank of England’s decision.
“It comes as no surprise that the MPC has elected to hold rates again this month. Increasingly the weight of opinion is that we have now seen the peak of this interest rate cycle and that next year will see an easing of interest rates. This definitely signals relief for homeowners and may ease the plight of first time buyers, by improving affordability again. We all tend to forget that even small changes in interest rates tend to be very valuable at the first time buyer level in the market.
“I believe that both the MPC and the Government are increasingly concerned about stagnation, rather than deflation, in the housing market and with the lack of any help for first time buyers in the budget, the massive fall off in first time buyer activity needs to be reinvigorated to underpin the rest of the housing market.
“Our current house view in terms of products is firmly in favour of discounted trackers, with the markets best deals showing savings of over 2% against mainstream standard variable rates. Because we believe there is a risk of lenders widening margins on the way down, the certainty afforded by base rate trackers, as a basis for discounting, is clearly the best advice route currently.
“Although fixed rates have fallen over the past month, notably at the middle end, with 5 year product rates now available under 5%, the additional saving by taking a base rate tracker for a short period is significant for most borrowers.
For example: - A £124,800 (CML average loan size) interest only mortgage at 6.75% SVR results in monthly payments of £702.00. Switching to the Alliance & Leicester’s 4.69% 2 year tracker mortgage (0.06% under Bank Base Rate for 2 years, followed by 1.00% over Bank Base Rate for 3 years, with early repayment fees payable only in the first 2 years) results in monthly payments of just £487.76, a saving of £214.24.
“Existing borrowers whose current deals expire at the end of December or January should be actively considering their remortgage opportunities now to ensure that they maintain cost effective house finance in 2005. Even a month’s delay, with the sort of differentials in the market that will arise if you revert to a lender's SVR, can be expensive.”
