Interest rate rise pushed back to 2012
Interest rates were held at 0.5 per cent this month – the 28th month in a row. There is also a growing consensus among economists that rates will not rise until next year at the earliest on account of sluggish growth and the Bank of England’s feeling that rate rises will do little to reduce inflationary pressures.
Latest inflation data show annual growth in the consumer prices index of 4.5 per cent in May. This is more than double the Bank of England’s 2 per cent target as commodity prices continue to make an impact, along with January’s VAT rise. However, this inflation is expected to be temporary, and is expected to drop back towards target next year so there is little rationale for raising rates.
What does this mean for mortgage rates? Lenders have been reducing the pricing on their fixed and tracker rates, which is excellent news for borrowers, particularly those on expensive standard variable rates who are considering remortgaging. Rates are falling across the board, even for mortgages with high loan-to-values although borrowers will still pay a premium if they have a modest deposit.
Private Finance has access to some fantastic deals, including a two-year tracker priced at 1.49 per cent over Bank Base Rate, giving an initial pay rate of 1.99 per cent (3.90 per cent APR), from one of the private banks. Borrowers require a 50 per cent deposit and there is a £995 fee. Those looking for a fixed rate can secure a deal for five years at 3.89 per cent (4.10 per cent APR) with £999 fee, again for those with a 50 per cent deposit.
It is important that borrowers are not complacent about interest rates and that they seek advice from Private Finance if they are coming to the end of a fixed or discounted mortgage deal.