Industry Respond to BoE Maintaining Bank Rate for 30th Month

Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £200 billion.

scope for optimism in the coming year."

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.

Mortgages now thousands of pounds cheaper than when the base rate first fell to 0.50%

David Black, Defaqto's Insight Analyst for Banking, said:

"The current economic climate has made it extremely difficult for people to borrow, particularly first time buyers.  

"However, the good news for those that manage to secure a mortgage is that mortgage rates are significantly more favourable now than they were two or so years ago - and, in monetary terms, people borrowing now will pay far less over the initial term of the mortgage than those that took out a similar product in March 2009.

"With a five year fixed rate mortgages available as low as 3.29%, a ten year fixed at 3.99% and a lifetime base rate tracker at bank base rate plus 1.99%, there is considerable choice for those with an undemanding Loan-to-Value requirement.

"However, it is important to remember that the base rate can only go one way - but the question is when, by how much and how quickly.  

"This is the great unknown and once the base rate starts to increase it will inevitably force mortgages rates upwards."

Bank Rate held, fixed rate mortgages keep tumbling

Ray Boulger of John Charcol, comments:

"With new evidence of problems in global economy emerging almost every day and EU politicians appearing to not be prepared to even accept the scale of the Euro problem, let alone take sufficient and robust action to address it, the economic outlook has deteriorated rapidly over the last month. 

"Markets have reacted by pushing to record lows the yield on some bonds issued by countries regarded as safe havens, such as the UK, allowing mortgage lenders to make some sizable cuts to the rates on offer on fixed rate mortgages. 

"After a brief respite the Eurozone countries deemed at risk of default have seen yields on their bonds rise again, with 1 year Greek bonds now yielding an eye watering 96% and its 2 year bonds around 50%! 

Source - MyIntroducer.com

"The scale of the contagion when Greece is allowed to default is difficult to judge but there are now so many problem countries in the Eurozone that a chain reaction, with Portugal next in line, and several other candidate countries in the firing line, seems very probable. 

"With Eurozone politicians refusing, or unable, to take the necessary action to deal with this crisis the markets will dictate how the situation develops, and it won't take prisoners.

"With such impending turmoil in our major trading partner area the impact on an already weak UK economy is likely to push UK GDP back into negative territory and Bank Rate looks set to remain at 0.5% for at least 2 years. 

"Further quantitative easing will no doubt have been discussed more seriously at this month's MPC meeting but with further trauma to come from the Eurozone the MPC needs to keep some ammunition in its armoury to deal with the fallout.

"One specific mortgage which offers the best of both worlds and will almost certainly work out cheaper than even the best 5 year fixed rate mortgage is the hybrid "Golden Hello" mortgage from Accord, which last week had a rate reduction. 

"For LTVs up to 75% this 5 year deal charges Bank Rate + 1.69% to 31/10/13, i.e. a starting rate of 2.19%, followed by a fixed rate of 3.39% for the next 3 years. Thus a highly competitive tracker rate for the first two years is followed by a guaranteed highly competitive fixed rate for 3 years. 

"Should Bank Rate remains at 0.5% until October 2013 the average rate on this mortgage would be 2.91% and for its average rate not to be lower than any 5 year fixed rate mortgage currently available Bank Rate would have to AVERAGE at least 2.75% over the next 2 years. 

"The mortgage is also available for LTVs up to 85% with rates a little over 1% higher, also making it cheaper than any current 5 year fixed rate up to 85% LTV."

Half of Brits would like to see base rate increase

Kevin Mountford, head of banking at MoneySupermarket said: 

"With the Bank of England Base Rate sitting at a record low for the past two and a half years it is clear that there have been winners and losers, with savers generally feeling the combined impact of low rates and high inflation. Some borrowers have benefited, particularly those mortgage borrowers with large deposits, or those who want to borrower larger amounts on personal loans. 

"Not surprisingly our own site poll clearly shows that savers would like to see Base Rate rise in the near future as many are struggling to generate good returns on their savings pots. 

"However, despite low interest rates we are seeing competition in the savings market, especially among the smaller players who are looking to attract new savers onto their books. The best rates are currently paying over six times the level of Base Rate, and there is no guarantee this will continue when rates eventually do rise. 

"Those who are sitting on their savings waiting for Base Rate to rise are missing out on the benefits today. When Base Rate does rise, it will only be gradual so it is unlikely we will see any major shift from providers in the short-term, so savers should make sure their money is working hard for them today.

"Many existing mortgage customers have benefited from low interest rates and would like to continue this benefit going forward. However, the danger is, with the cost of living increasing, many borrowers would be unable to cope with any future increase in rates. 

"Those sat on low rate variable deals could consider fixing their mortgages to protect themselves against future rises in rates."

Richard Barker, mortgage manager at N&P, said:

"The decision to leave Base Rate unchanged at 0.50% for the 30th month in a row was widely expected across the market. Although the current Consumer Prices Index (CPI) inflation figure remains well above the government's target, the UK economy remains relatively fragile at present and any increase is now predicted to occur in 2012. 

"Recent housing market data suggests that house prices fell slightly in August and affordability for first time buyers is stretched, further reinforcing the argument to keep rates on hold for longer.

Barry Naisbitt, Chief Economist at Santander, said:

"Following the change in the voting at the August Monetary Policy Committee, with all members voting to hold rates, and with the recent survey indicators of economic activity continuing to show at best a subdued picture, the expectation was that the MPC would vote once again to hold Bank Rate at 0.5%.  

"However, the slow pace of growth, both in the UK and globally, plus concerns about output falling in some industries has led to increased speculation about the announcement of further quantitative easing.  Indeed one MPC member has been arguing for this for some while. 

"Today's vote to hold rates was widely expected but does not rule out further action if the MPC, after having taken stock of further information, considers there is a need for a change in policy.  

"With inflation still running well above target at 4.4% and expected to rise further in the coming months, rates look likely to be left on hold for a considerable while.  The minutes of the meeting are likely to be watched keenly by financial markets to see how views within the MPC are changing."      

Grenville Turner, Group Chief Executive of Countrywide, said:

“The MPC’s decision to keep base rates unchanged is unsurprising as concerns continue to grow about the considerable challenges facing the UK economy and the lack of progress in the economic recovery. 

"The calls for the Bank of England to revive the economy with another round of quantitative easing  is justified in order to boost bank lending and prevent the economy slipping back into recession.

 “As the largest UK-wide network of mortgage consultants operating in estate agency offices, we see this first hand the issues facing borrowers. 

"In a market ravaged by uncertainty and almost daily headlines around the economy, house prices and employment issues, we continue to see an appetite from borrowers looking to take advantage of the much more competitive mortgage products on offer. 

"The stumbling block continues to be the level of mortgage deposit that consumers are expected to find which remains the critical issue not affordability. Mortgage availability is also a concern with current lending levels much lower than in 2010. 

"It is the strictness of lenders criteria which is unfortunately impacting on borrowers gaining finance resulting in many of them having to withdraw their purchases.”

Karen Barrett, chief executive of unbiased.co.uk, comments:

"Today's decision to keep rates at 0.5% for yet another month means that we are continuing to face a historically low rate for a record 31st month, while at the same time inflation is soaring above its target.

"The impact on savers is clear - low interest rates on savings, coupled with the effect of inflation on already low returns, means that savers need to look for alternative ways to make their money work for them.

"At the same time we have a worrying 46% of mortgage borrowers who haven't reviewed their borrowing arrangements since the base rate last moved. 

"With mortgage rates significantly lower than just two years ago and an increasing amount of attractive deals coming onto the market at a variety of loan-to-value ranges, we would urge every mortgage holder to spend some time looking at their current borrowing arrangements."

CEO of Dragonfly Property Finance, said:

"With the trailers already running for Global Economic Meltdown 2, the Bank was always going to leave rates on hold. The UK economy is simply too fragile to even consider a rate rise. Battered business and consumer confidence just wouldn't cope.

"The Bank would never admit as much, but we are facing at least another year of holds, maybe even double that. The setting of monetary policy has morphed into a symbolic process where even a quarter point rise in Bank Rate becomes far more than that.

"The primary aim of the MPC is no longer to manage inflation but to manage sentiment."

Paul Hunt, managing director of Phoebus Software said: 

“The MPC’s decision not to enlarge the QE programme this month demonstrates the committee still has faith in the economy’s capacity to keep its head above water and grow. 

"This is reflected in the mortgage industry as lenders continue to drive down prices and are offering ever more affordable fixed rate deals. 

"It’s true volumes haven’t so far begun to rise, but lenders’ commitment to offering attractive deals and innovative products gives the market plenty of