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Bank of England Base Rate

04.06.09

As widely predicted, the Monetary Policy Committee has again voted to hold the Bank of England Base Rate at 0.5% today.

There has been growing talk that there are now definite signs of recovery, especially with the news this week of a growth in the service sector for the first time in a year, according to The Chartered Institute of Purchasing and Supply’s (CIPS) services survey.

Taken together with the Halifax reporting that house prices rose by 2.6% in May, the Bank of England stating that there was an 8% rise in the number of mortgages approved for house purchases, as well as the Nationwide Index of consumer confidence jumping further, there do seem to be some reasons to be cheerful.

However, although there are grounds for cautious optimism, the availability of mortgage finance, especially for first time buyers with smaller deposits, remains constrained.

3 month LIBOR, (the rate at which banks lend to each other that was so out of kilter during the main thrust of the credit crunch), is now back to around 0.7% above Bank Base. This is the upper limit of “normality” we have seen in the past, so in this respect, the credit crunch seems to be at an end. The aftershocks however, are still being felt in banking boardrooms across the world, and whilst there has been a definite easing in some respects, lending will continue to be modest at best.

What is clear, however, is that the smart money is now firmly on longer term fixed rates, and although there are 2 year fixes from as low as 3.49%, 5 year fixes are the most popular request. Fixing at around 4.5% for 5 years in any market is competitive, but especially so when competition between lenders is stifled, and the next interest rate move will be an upwards one.

The cheapest tracker product is still at a low of 2.49% for those who think rates are not going anywhere in the near future, but if these positive specks of light turn into a full ray of sunshine, rates may increase sooner than many had first thought.

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Andrew Montlake

Written by Andrew Montlake

Andrew Montlake, better known as Monty, began his journey with an Hons degree in Economics & Politics before starting in the mortgage industry in February 1994. As a main founder of Coreco in 2009, he successfully grew the brand, marketing, and communications, and was made MD in 2019 focussing on the overall vision, strategy, and culture of the company. As Coreco’s media spokesperson, Andrew can often be seen or heard on TV and radio as well as regularly commenting in the national, local, and trade press. He is the author of this acclaimed Mortgage Blog and is well-known for his social media, podcasts, and public speaking. Andrew is now proud to serve as Chairman of the Association of Mortgage Intermediaries, (AMI) as a cheerleader for the Mortgage Industry as a whole and continues to work at the coal face, writing mortgage business and advising clients.

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