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Mortgage lenders expected to cut rates

4th August 2005 | back to article listings BACK    print this article PRINT

Mortgage lenders in the UK are widely expected to lower their variable rates following today's announcement of an interest rate cut from the Bank of England's Monetary Policy Committee (MPC).

At midday, the MPC announced that it is cutting interest rates from their three-and-a-half year high of 4.75 per cent to 4.5 per cent. Since last month's decision to hold interest rates, a suite of economic data has shown the UK stuttering - and the vast majority of economists predicted that the Bank would respond by cutting rates. Recent surveys have revealed that the majority of economists polled anticipated a rate cut, with the remainder expecting a freeze.

The 0.25 per cent fall in interest rates will reduce mortgage repayments for the millions of homeowners on variable rate, discounted rate, capped, and tracker mortgages. This comes with the expectation that mortgage providers will cut their rates. Already two mainstream lenders have announced rate cuts, with Halifax cutting its variable mortgage rate by 25 basis points to 6.5 per cent and HSBC announcing a 25 basis point reduction to sit at 5.5 per cent. Other lenders are yet to make similar cuts, but are expected to do so in the future. Commenting on this, Nationwide has suggested that it may only be a matter of time.

"At the moment we're just monitoring the market," a spokeswoman for Nationwide told Reuters. "We'll take a decision in due course."

In related news, a growing number of borrowers are opting for fixed rate mortgage deals, with the number of applications for these mortgages up by 30 per cent compared to figures for a year previous. According to statistics from property firm Your Move, 85 per cent of mortgages secured over the course of July were at a fixed rate, up from 55 per cent over the same period in 2004. Between January and June, some 75 per cent of new borrowers entered fixed rate deals. In addition savings on fixed rate deals have increased by some 13 per cent last month, nearly twice as much as for the like period last year.

"Those who do wait or who take a discounted variable rate mortgage run the risk that market expectations could reverse again later this year, as they have done twice already in 2005, and so miss out on the best rates," commented Jon Round, remortgage analyst at Your Move, according to IFA Online. "The actual interest rates themselves on two year and five year deals are a full 0.25 per cent below the best discounted variable rates.

That means that even after the widely expected cut in base rates, discounted rates will not offer greater savings," he added.

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