Homeowners struggle on as base rate held at 5%

Yesterday’s decision by the Bank of England’s Monetary Policy Committee to keep the base rate on hold at 5%, will have disappointed homeowners struggling with increased mortgage repayments, rising living costs and falling house prices.

News that the rate would remain unchanged in July followed a report earlier this week from financial website Moneyfacts.co.uk asserting that the cost of fixed-rate mortgages has continued to rise, despite a fall in money market swap rates.

Figures from the Bank of England show that mortgage interest rates are at their highest level for eight years, with the average rate on a two-year fixed rate loan at 6.63%.

According to the Council of Mortgage Lenders, the affect of the Bank’s Special Liquidity Scheme, which was launched in April to free up inter-bank lending and reduce mortgage interest rates, has yet to be felt.

Meanwhile, the Halifax house price index recorded a 2% fall in the value of the average UK home in June, putting the annual rate of decline at 6.1%, its highest level since March 1993.

The direction of interest rates remains difficult to predict. A cut in the base rate is much needed to help the UK economy, which is showing signs of a slowdown but could also fuel inflation, which is already above the Government’s 2% target, at 3.3%, largely as a result of rises in fuel and food prices.

Policymakers therefore find themselves between a rock and a hard place.

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