04-Jun-2009

The Bank of England’s Monetary Policy Committee has decided to hold the base rate at 0.5% for the third month in a row.

The MPC has also voted to continue with its £125bn asset purchase programme, or quantitative easing.

It expects the programme to take another two months to complete and says the scale of the purchases is to be kept under review.

With little room for manoeuvre in cutting interest rates, all eyes were on whether the Bank would want to extend its programme of quantitative easing beyond the £150bn limit agreed with the Treasury.

Commentators had forecast that the central bank may request more money to play with in an attempt to boost the money supply.

Johnathan Cornell, head of communications at First Action Finance, says: "Many analysts believe the base rate will remain at 0.5% until well into 2010.

"Whilst that's great news for those borrowers on tracker rates, those who are sitting on the fence on their lenders standard variable rate, waiting to see what happens, face a much bigger potential problem than splinters.

"They can sit tight and enjoy their low rate however if they need financial stability the time to get off the fence is rapidly approaching."

He adds: "Swap rates which lenders use to fund their fixed rates have been increasing in the past few weeks and we have seen fixed mortgage rates edging upwards.

"Most of the lenders which offered borrowers 'drop lock' facilities which allow borrowers to change from a tracker rate to a fixed rate with incurring early repayment charges have scrapped these in the past couple of months.

"If borrowers want to fix their mortgage the time to act is now, delays will be costly."

Ray Boulger, senior technical manager at John Charcol, says: "Despite the Bank having used about £75bn of the funds it has agreed to commit under its quantitative easing programme it is hard to see any visible impact of this so far in terms of any real increase in mortgage availability.

"It may be that with the housing market performing better than virtually all the forecasts at the end of last year, albeit with activity still at a historically low level, the modest extra mortgage demand this has generated is enough to be the straw that breaks the camel’s back."

Posted 04/06/2009 12:56:16