Mortgage Advice

Cheaper Mortgage Rates

Yesterday, the Bank of England cut interest rates by 0.25%. The good news is that most mortgage lenders have been swift to pass on the rate cut to their consumers. The last time the Bank cut interest rates, in 2007, from 5.75% to 5.5% my mortgage lender never passed on the rate cut, so my mortgage payments remained the same. There were fears that lenders may not pass on this cut because of the credit crunch causing a shortage of funds for lending.
The rate cut comes amid growing uncertainty over the future of the UK economy. Although a recession remains unlikely, falling house prices do put pressure on consumer spending. In the past 10 years, rising house prices have been an important factor in maintaining economic growth because rising prices enables equity withdrawal and therefore rising spending. However, with house prices now stagnating, this aspect of economic growth is slipping. Therefore, the Bank are less concerned about inflation, hence the decision to drop rates.

Nevertheless, the Bank still noted caution over future inflation saying:

“The committee needs to balance the risk that a sharp slowing in activity pulls inflation below the target in the medium term against the risk that elevated inflation expectations keep inflation above target,”

With the prospect of mortgage interest rates falling further, many are suggesting that fixed rate mortgages are not offering particular good value. Instead the best mortgage products are tracker mortgages which are fixed to the Bank’s base rates.

Mortgage interest rates and Inflation at Bank of England