Interest Rate Cuts Looking More Likely
The end of last year and the beginning of this year started out quite well for all those people who are making payments on a mortgage or home loan (apart from those on a fixed rate deal), with the Bank of England giving us a nice Christmas present in the form of a cut in the base rate of interest in December last year, followed by further cuts of a quarter of a per cent each in February and April this year.
Things were looking good for borrowers who had already made savings on their home loan repayments, with many anticipating further reductions in interest rates throughout the year, leading to even more savings.
Unfortunately for those people with loans, the rate of inflation suddenly started to increase dramatically, largely caused by the increase in the price of energy bills, food and petrol and in order to try and counter this, or at least slow the process down, the Bank of England was forced to keep interest rates on hold at 5 per cent and it has remained at this rate since April this year.
The Monetary Policy Committee (MPC) of the Bank of England meet once a month to discuss, amongst other things, what the base rate of interest should be and they have been coming under increasing pressure to reduce rates to help the housing market and also those individuals with large mortgages and loans.
The Council of Mortgage Lenders (CML) has now suggested that, due to the current economic situation, we could see an interest rate cut sooner rather than later, possibly as early as November this year.
Food and fuel prices are starting to come under control once more and the price of oil has dropped, easing inflationary pressures and the MPC’s next priority is to help the housing and mortgage loan markets.
The Government has already extended its special liquidity scheme with extra funding and the take over of HBoS by Lloyds TSB has helped to create some level of stability in the home loan market. The next logical step is to cut interest rates and the CML have said that they expect a cut this year, followed by several cuts throughout the course of 2009.
This is very welcome news, as not only would it help those borrowers who are currently struggling to maintain repayments on their loans, but it would also offer a real incentive to first time buyers and movers to return to the housing market, giving it the boost it needs.
