Calls for further interest rate cuts

Thursday, 27 March 2008 12:00 AM

Independent mortgage adviser John Charcol has called on the Bank of England to cut interest rates further in order to ease pressures on the UK housing market.

The Bank has already cut rates twice, in December and February to a rate of 5.25 per cent, but further action is now being demanded.

"A further Bank rate cut would not normally be expected in an environment of improved growth expectations combined with inflation climbing to one per cent over target," explained Charcol's Katie Tucker.

"However, cash-strapped homeowners will be relieved to know some relief to their purse-strings may still be due, as mortgage lenders' own cost of borrowing is high, and a further Bank rate cut may be used to relieve this."

Banks have been criticised in the wake of the credit crunch for not passing cuts in interest rates on to customers, and continuing to charge higher rates on their variable mortgage products.

"The hope for buyers and homeowners, will be that the monetary policy committee (MPC) is not deterred from implementing another rate cut soon, by having to write a letter of explanation to the chancellor to explain why inflation has exceeded three per cent," continued Ms Tucker.

The Bank's modest cuts to date are in contrast to those of the Federal Reserve in America, which has slashed rates to 2.25 per cent from over five per cent so far in 2008.

However, failing a cut in the base rate, there seems to be little prospect of lenders cutting rates in the near future.

"Deutsche Bank's report this week showed lender margins are in some places three times higher than last year. This is by no means profiteering: this time last year, lenders' focus was on gobbling up market share, normally at loss-leading mortgage rates," continued Ms Tucker.

"However, lenders' own cost of borrowing now, for fixed-rates and variable rates alike, is so high that they would need to charge in the region of three quarters of a percent above Bank rate, or an equivalently large fee, just to break even."

Research from Charcol finds First Direct's two year fixed-rate mortgage remains the best buy despite its increase to 4.95 per cent.

Meanwhile Woolwich continues to take the top spot for ten-year fixes with its highly competitive 5.29 per cent fixed-rate with free valuation and legal costs on remortgages.

Tags:
• uk property news