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Industry welcomes BoE rate freeze

The industry has welcomed the Bank of England’s decision to freeze interest rates as good news for mortgage borrowers.

The Monetary Policy Committee today voted to hold the base rate at 5.50% in June.

The Council of Mortgage Lenders welcomes the base rate decision but warns fixed rate borrowers to plan ahead.

Michael Coogan, director general, at CML, says: “While today’s decision not to raise rates is welcome, there is no cause for complacency.

“More than two million borrowers over the next year and a half will reach the end of fixed-rate deals, and will face the prospect of higher mortgage payments.

“For most people, the scale of the increase will be manageable. But it makes sense for borrowers whose fixed-rates will end soon to start planning ahead now, and to recognise that their monthly costs will be higher in the future.

“Anyone who thinks they may face financial difficulties should talk to their lender at an early stage to see what steps can be taken to improve their situation.”

The Royal Institution of Chartered Surveyors says the Bank of England may be forced to up rates to 6% by the end of the year.

David Stubbs, senior economist at RICS, says: “The Bank of England’s decision to hold interest rates at 5.5% is not unexpected as inflation is likely to fall back quickly in coming months, and policymakers are unsure how much impact their past moves will have.

“However, while further evidence of a slowing housing market is now clear for all to see, the balance of risks to inflation remains on the upside given the overall strength of the economy.

“This suggests at least one further rise is still on the cards. Indeed, by not raising interest rates now the bank risks having to push rates to 6% by the end of the year.”

But John Charcol says a rate rise by August is not a done deal.

Ray Boulger, senior technical manager at John Charcol, says: “There is little doubt that the four interest rate rises in the last 10 months are now having the desired effect on the housing market.

“As we enter the warmer months of the year prices are certainly cooling off, but it remains to be seen whether we have reached the peak of this cycle.

“The market is absolutely anticipating another rise by August but it is not yet a done deal.

“The majority of economists are calling for a rise in July but if we need another increase it would be more logical for the MPC to wait until the next quarterly inflation report in August before making that decision.

“With the total previous rise of 1% looking like it is doing the trick, I believe the MPC will want more time to see if this is indeed the case.”

“With the market fully factoring in another quarter point rise, and partially a second one to 6%, most fixed rates look expensive unless bank rate goes beyond 6%.”

Hamptons says the decision will give borrowers some breathing space.

Jonathan Cornell, technical director at Hamptons International Mortgages, says: “The MPC’s decision to hold the base rate at 5.50% this month is unsurprising given last months decision to raise it by 25 basis points.

“Reports this month highlight a decline in inflation from the record reaching heights of April and the early signs of a cooling housing market.

“It, therefore, seems like the sensible decision to offer borrowers some breathing space before the further inevitable increases predicted by many analysts.

“However, regardless of the amount of breathing space the MPC decides to offer, borrowers will still be left with an impending sense of insecurity as good fixed rate deals become few and far between and variable rates remain surrounded by a certain sense of the unknown.”

Mortgage Advice Bureau, says borrowers are safe for now but should expect to see a further rate rise.

Brian Murphy, head of lending at MAB, says: “Following May’s rise, today’s decision by the MPC to hold the base rate at 5.50% appears a logical and sensible decision.

“While city analysts remain in agreement that the only way is up, and predict that the base rate will hit 6.00% by the year end, it seems the MPC has decided to let the effects of last month’s rise play out.

“Reports issued in May by the Land Registry, Halifax and the CML suggest a certain amount of evidence to show that the past four successive rate rises are having the desired cooling effect on the housing market. Inflation figures also show the start of a recovery from the record heights of April.

“However, while June may offer borrowers a month to steady themselves from last months rise a hold is unlikely to last.

“Borrowers should be prepared for further rate increases and their subsequent effects upon mortgage repayments.

“The opportunity to return to a first-time buyers market seems to be slipping ever further away.”

Allied Surveyors has welcomed the decision to maintain rates.

Robert Bryant-Pearson, chief executive of Allied Surveyors, says: “I welcome today’s decision to hold interest rates at 5.5%.

“This is a sensible decision at a time when the level of house prices in relation to earnings makes the housing market dangerously vulnerable.

“The Home Information Packs shambles caused many houses to come onto the market where the owners were only interested in selling if they could find a house they wanted to buy.

“This distortion is chaotic for purchasers as the number of houses that are truly readily available for sale is as low now as it has been over the last few years.

“The housing market has slowed considerably and during the remainder of the year I would expect to see a quieter market with limited supply matched by muted demand.

“There is wide speculation that rates are close to their peak in the current cycle, which is just as well.

“If rates were to increase much more, then repossessions would rise and we would see a price crash as we did about 16 years ago.”

Interbay says the MPC could be criticised for not upping rates.

Colin Bell, operations director at InterBay Commercial, says: “The bank could be criticised for delaying a rate rise when economic indicators are pointing to an inevitable move upwards.

“Market demand remains strong and on the back of this demand retailers have pushed prices up, simply because current conditions mean they can.

“ 2007 has seen the MPC adopt a much more reactive stance a ‘wait and see’ approach as opposed to striking proactively; holding rates today is another example of this.

“Last month some MPC members were seriously discussing the need for a 0.5% rise in one move, as they cautiously increased rates by just 0.25% last month and have held off making any further increase this month, one can only assume they have been overruled.

“It would also seem to be the case that the speculators amongst the committee are choosing to ignore the factors, which led their more prudent colleagues to moot the need for more aggressive action. It will be interesting to see how the vote was split this month.”

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