Interest rates stay at 5.25%

Thursday, 5 April 2007 12:00 AM

The Bank of England voted to keep interest rates at their current level of 5.25 per cent today.

The decision by the Bank's monetary policy committee (MPC), which raises and lowers interest rates to try keep inflation level with the government's two per cent target, was largely predicted by property and finance experts.

It is the third month in a row the MPC has voted to keep interest rates at 5.25 per cent, following three increases from August to January seeing base rate up from 4.5 to 5.25 per cent.

Holding rates at 5.25 per cent was largely welcomed by experts in the housing market.

"Home buyers will be breathing a huge sigh of relief today. Confidence in the housing market is still relatively strong, but there are already signs of a slowdown," commented Nicholas Leeming, director of Propertyfinder.com.

"After three rises since the summer, buyers are increasingly sensitive to interest rates. Furthermore the coming introduction of Hips [home information packs] may cause some disruption to the market, and a further hike today would have been ill-timed to say the least."

Estate agent Haart warned the three rises since August had been hitting borrowers hard.

"Following the shock rise in January we have seen the number of repossessions increase as homeowners struggle to meet mortgage repayments," said Paul Smith, chief executive of Haart estate agents.

"A decision to raise it further would have had a serious impact on the housing market. House prices have stabilised and buyers have sensibly become wary about over-stretching their borrowing capacity.

"Holding the interest rates will help to reinstate consumer confidence and is particularly good news for first-time buyers who are already struggling to get on the property ladder."

Looking to the near future, many property experts are predicting rates may increase again.

"The committee clearly believe that inflation is due to fall back in the coming months, and are less concerned about spiralling wage rises after the January pay round appears to have passed with a whimper," commented David Stubbs, senior economist for the Royal Institution of Chartered Surveyors (Rics).

"However, worries over firms raising prices and the modest extent of the slowdown in the housing market makes another interest rate increase in the coming months likely.

"The recent surge in oil prices threatens to create further energy related inflation pressure which may drive up the interest rate as well," he warned.

Mortgage company John Charcol also explained there could be a rate rise in the near future, but it is by no means a certainty.

"Today's decision probably resulted from another split vote and a 0.25 per cent increase to 5.5 per cent next month is widely expected by the market," commented Ray Boulger of John Charcol.

"However, this is far from a foregone conclusion, particularly in the light of the voting at last month's [MPC] meeting, where there was one vote for a cut and none for an increase."

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