Ray Boulger of Charcol comments on yesterday's base rate freeze, which leaves the base rate on hold for a whole year at 4%.
Boulger says: “Base rate was widely tipped to be cut yesterday, particularly with the Federal Reserve announcement on Wednesday, but the decision was always going to be a close one. Despite this month's 'no change' decision, a rate cut may still be on the agenda for the near future.
“House price inflation is beginning to show signs of cooling off, with the Nationwide reporting a slow down for October. This is likely to be in the forefront of the Bank of England's mind, who have relied heavily on the housing market to revive the economy. We predict that this house price inflation slowdown will continue into the New Year, and a base rate cut next time around could be helpful in preventing the increase in house prices from slowing down too quickly.”
Despite no change, the historically low base rate continues of course to be great news for mortgage borrowers. As there is still a strong likelihood of a rate cut in the near future those on base rate trackers may yet have cause for celebration. However, a low interest rate environment puts the squeeze on savings rates, so, for the sake of their wider financial circumstances, Charcol belives it is even more important for borrowers to make the most of potential cost-savings on their mortgage payments. For example, borrowers on flexible mortgages should consider overpaying on their normal monthly payments where they can and therefore reduce their mortgage debt and shorten their term.
Those borrowers still on standard variable rates are urged to switch or remortgage to a competitive rate. Rates are now so low (on both floating and fixed deals as fixed rates have already factored in a potential future cut) that even borrowers who have some redemption penalties on their deal may still find that the potential savings outweigh the costs.