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Product category: Mortgages / Housing
News Release from: John Charcol | Subject: Mortgages
Edited by the Insidemoneytalk Editorial Team on 09 March 2007

John Charcol: Is 5.25% peak for interest
rates?

Monetary Policy Committee holds Bank Rate at 5.25% after month with few new inflationary worries.

Likelihood of 5.25% proving to be the peak for this cycle increases Ray Boulger of John Charcol, the UK's leading Independent Mortgage Adviser, commentson today's decision by the Monetary Policy Committee (MPC) to hold Bank Rate at 5.25%

"This decision, whilst expected, suggests that when the February Consumer Price Index (CPI) is published next week it will not contain any nasty surprises".

""Some more positive news over the last month on the factor the MPC is expecting to be particularly material in bringing inflation down later this year has been the confirmation from some gas and electricity suppliers not only of further significant falls in prices but also reductions being implemented earlier than had been expected.

The combination of last year's increases falling out of the year on year CPI comparison and this year's decreases will provide a double benefit to the inflation figures.

"Whilst the worldwide turbulence in equity prices over the last fortnight was probably not a major influence in the MPC's deliberations it will have intoned a note of caution".

"Possibly more important will have been increasing concern about the US housing market".

"Over 30 US mortgage lenders have gone bust or got into severe financial difficulties over the last few months on the back of the toxic mixture of house price falls and sharp rises interest rates".

""The impact on an already weak housing market of lenders tightening criteria and seeing funding costs increased, or even having them withdrawn, means the situation is likely to deteriorate further.

A weaker housing market will result in a weaker economy and when America sneezes the rest of the world catches a cold.

The possibility of a forthcoming depression in the US, which Alan Greenspan rates as a 1 in 3 chance, with its consequent impact on us, won't have been ignored by the MPC.

"As far as the UK housing market is concerned early signs of a slowdown in the rate of increase in prices are emerging as the impact of the three recent Bank Rate increases puts more pressure on prospective purchasers".

"In general purchasers are increasingly reluctant to bid prices up but there is still a shortage of property for sale in many areas".

"This is likely to change shortly as many people thinking of selling will put their property on the market before the end of May to avoid being forced to incur the cost of a Home Information Pack (HIP)".

""Swap rates have declined a little over the last month and the market is no longer factoring in the probability of Bank Rate rising a further 0.5% to 5.75%, but it is still fully reflecting the expectation of one more increase to 5.5%.

However, the market often gets carried away and overdoes expectations of Bank Rate movements (both ways) and whilst one more increase to 5.5% is still entirely possible the likelihood of 5.25% being the peak of this cycle has increased." What should borrowers do now? Boulger continues:andnbsp; "A few lenders have reduced the rates on some of their fixed rate mortgages over the last few days as swap rates have fallen.

It is now too late too buy a fixed rate mortgage as protection from rate increases, as one more increase in Bank Rate is factored into the rates.

However, many borrowers will still prefer a fixed or capped rate for the budgeting certainty and consequent peace of mind they offer".

""For others there is an excellent choice of trackers, with the lowest 2 year rate without extended early repayment charges or a very high fee having a rate as low as 4.44%, with a fee of 1.25%".

"An excellent choice of 2 year trackers is available well below Bank Rate and it is even possible to buy a 3 or 5 years tracker mortgage below Bank Rate with no early repayment charges at any time and a droplock option." Borrowers keen to see how much they could save on their mortgage repayments should either contact John Charcol on 0800 71 81 91 or post a copy of their existing mortgage offer marked clearly "Remortgage Check" to John Charcol, Holbrook House, 10-12 Great Queen St, London, WC2B 5DD.

This service is obligation free and consumers are in no way required to act upon the recommendations given.

Borrowers should contact 0800 71 81 91or visit www.johncharcol.co.uk.

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