Mortgage rates on hold

Thursday, 8 September 2005 12:00 AM

There will be no change in mortgage rates in September after the Bank of England kept the cost of borrowing on hold at 4.5 per cent.

The move will disappoint holders of tracker and variable rate mortgages who will have been hoping for further interest rate cuts to reduce their monthly repayments after August's quarter per cent cut.

Economists widely expected the bank to leave interest rates unchanged this month, although some are now ruling out further cuts in the near future.

In August the Bank voted to reduce interest rates for the first time in over two years, reducing them to 4.5 per cent from their three-and-a-half year high of 4.75 per cent.

But the Bank's recent inflation report and minutes of the last meeting, which state that it "did not support the current market view that a sequence of interest rate cuts was likely to be needed to meet the inflation target in the medium term", have dampened expectations of further cuts.

Howard Archer, chief economist at Global Insight, said: "Not only is the Bank of England in no hurry to cut rates again, but that it is possible that August's reduction could turn out to be the only cut in this cycle."

Observers suggested last month's cut would provide a much-needed boost to the housing market, and this was born out to some extent by figures published by Halifax on Wednesday, if not by Nationwide's six days earlier.

The Halifax house price index reported a 1.6 per cent price rise during August, following only a 0.4 per cent rise in July.

But Halifax chief economist Martin Ellis said the pick up was consistent with "the previous pattern of house price movements when the Bank of England begins to reduce interest rates" and expected it to be short lived.

Nationwide's house price index on the other hand, revealed a 0.2 per cent fall in house prices in August.

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