Mark Chilton, chief executive of Purely Mortgages, announced his expectation that the Base Rate will be cut to 3.75 per cent before rising to reach 4 per cent. He also indicated lenders would increase their SVR margins due to increased competition for deposits.
He said: “We enter 2006 with rather different growth prospects, notably in comparison with other advanced economies from previous years. Declining consumer confidence has led to growth stalling and the impact of the current pensions debate and saving shortfalls will further erode this confidence during the early part of next year.
“Thus, while both the euro zone and the US are increasing interest rates, the pressure in the UK will remain downwards to reinstall consumer confidence and spending.”
Chilton also predicted housing transaction volumes would drop with properties in high demand and low supply for certain areas making it harder to get onto the property ladder.
However, Sarah Gwilt, mortgage adviser at Dickson Lishman Prince, believed some of Chilton’s predictions were optimistic. She said: “I agree with the statement to a certain extent. The housing market firmed up
in 2005 with down valuations becoming more common.
“With inflation running at the high-end of the Bank of England target, the pressure to increase rates is equally high; therefore the prediction of the Base Rate drop-ping to 3.75 per cent in my view is optimistic. Lenders and brokers who are equally in the remortgage and purchase markets should weather the storm relatively unscathed.”
