Optimism after Base Rate hold (From Prestwich and Whitefield Guide)

Optimism after Base Rate hold

1:48pm Monday 8th June 2009

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A leading Bolton mortgage advisor has called for optimism, following the Monetary Policy Committee’s decision to hold the Bank of England Base Rate at 0.5%. Rahim Rajani, from Farrell Heyworth’s Mortgage Advice Bureau, in Bradshawgate, Bolton, said: "There has been growing talk that there are now definite signs of recovery, especially with the news this week of a growth in the service sector for the first time in a year, according to The Chartered Institute of Purchasing and Supply's (CIPS) services survey.

Taken together with the Halifax reporting that house prices rose by 2.6% in May, the Bank of England stating that there was an 8% rise in the number of mortgages approved for house purchases, as well as the Nationwide Index of consumer confidence jumping further, there do seem to be some reasons to be cheerful.

However, although there are grounds for cautious optimism, the availability of mortgage finance, especially for first time buyers with smaller deposits, remains constrained.

3 month LIBOR, (the rate at which banks lend to each other that was so out of kilter during the main thrust of the credit crunch), is now back to around 0.7% above Bank Base. This is the upper limit of "normality" we have seen in the past, so in this respect, the credit crunch seems to be at an end. The aftershocks however, are still being felt in banking boardrooms across the world, and whilst there has been a definite easing in some respects, lending will continue to be modest at best.

What is clear, however, is that the smart money is now firmly on longer term fixed rates, and borrowers seem to be erring on the side of caution by opting for fixed rates over variable deals. The rates now available for short and medium term fixed rates are competitive for any market, but especially considering the competition between the lenders is stifled, and the next interest rate move will almost certainly be an upwards one."

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