Base rate on hold at 5%

The Bank of England’s Monetary Policy Committee (MPC) has voted to keep the base rate on hold at 5% in August.

While mortgage borrowers will be relieved at the news, it is unlikely to have an impact on the decline in UK house prices, which according to Halifax slid 1.7% last month, taking annual house price deflation to 10.9%, or 8.8% over the three months to the end July.

The credit crisis shifted all but base rate tracker interest rates away from the Bank’s base rate to Libor, the rate at which banks are prepared to lend to one another.

Uncertainty about the scale of the writedowns, banks would have to accommodate on their balance sheets from the US sub-prime mortgage crisis pushed up money market rates.

In June, the average rate on the popular two-year fixed-rate mortgage reached a ten-year high of 7.08%, according to Moneyfacts data.

However, market swap rates have been falling in recent weeks and the average rate on a two-year fix dipped back to 6.96% towards the end of last month.

At the same time, competition appears to be returning to the mortgage market, with High Street lenders now making rate cuts on a weekly basis.

However, first-time buyers and others remain frozen out of the market because the best deals are still for those with large deposits and impeccable credit histories.

Meanwhile repossessions, whilst remaining historically low, rose by 40% in the first quarter of 2008, prompting a warning from the Financial Services Authority that lenders should use court action only as a last resort.

Discuss this in the Finance Markets forums

Story link: Base rate on hold at 5%