Lending Cut Price in Inflation Fears

by Mark Johnston

Lenders like Skipton Building Society and Woolich are among a few lenders focusing on cutting prices in a n effort to attract new customers and first time buyers.  The first time buyers have a mortgage deal on offer from Skipton for a 5.09 per cent rate with a 90 per cent loan to value rate.

The mortgage rate price war is heating up as lenders try and cut their rates on fixed rates and tracker mortgages in an effort to bring in new customers and tempt existing customers to release equity.  for those borrowers who have a large enough deposit, the range of mortgage and re-mortgage deals on offer is greater as we head into the home buying season.  Things are heating up even more now that the Bank of England has decided to maintain interest rates. 

The Bank of England’s Andrew Sentence has warned that interest rates could “quadruple in a year” hugely impacting average households.  In a recent statement, Andrew has predicted that the base rate will be as high as 2 per cent by next year, suggesting that if interest rates don’t go up, it would put Brittan in a more difficult economic situation. 

With the gradual rise in inflation and the cost of living is increasing too, Mr. Sentence failed to argue his case successfully for a doubling of the interest rate this month.  He claims that due to the sharp rise in cost of living, the base rate will need to increase to ensure a control over inflation.  A warning to families is that interest rates are likely to go up to 2 per cent by this time next year.  

Recently the Bank of England maintained the startling base rate of 0.5 per cent.  This should come as no surprise to the readers of MortgageRates.org.  With the struggling pound and the weak progress of the pound against other currencies, the Monetary Policy Committee has decreed that the base rate should not change.  This marks the 26th month running that the committee has decided against a change. 

What is a surprise is that the bank decided against increased quantitive easing.  There is some disagreement in the committee, with a small division requesting an increase to the base rate, citing continued impacts on inflation and pressures within this market.  Members of the monetary committee seem quite happy to wait and see what figures say regarding growth on Gross Domestic Produce (GDP).  Investors are betting the Bank will hold out on action until May or June but this is where the economic picture becomes a little clearer and where decisions need to be made and risks need to be taken.

The drop in the consumer price index from 4.4 per cent to 4 per cent last month has planted the seed that the BoE base rate may only change in August.  Chief economist at HIS Global Insight, Howard Archer said “We expect the Bank of England to delay raising interest rates from 0.5% to 0.75% until August, given the major uncertainties and concerns about the underlying strength of the UK economy and its ability to withstand the fiscal squeeze that really kicked in at the start of April. Also, most monetary policy committee members are still reluctant to hike interest rates due to concerns and uncertainties over the growth outlook.”



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