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Mortgages Shaved Despite Hold in Interest Rates
The Bank of England left the interest rate unchanged at 4˝pc yesterday but that did not dissuade mortgage lenders from continuing to cut their borrowing rates.
It is now possible to get a mortgage that is fixed over two years for 0.3 percentage points beneath the official base rate. Portman Building Society is offering 4.2pc.
The availability of such cheap mortgages is an indication that the money markets believe interest rates will continue to fall, an assumption that the Bank of England warned against at its last inflation report in August.
The Bank showed that inflation would soon run above the target if interest rates fell to the point which the market expects. That temporarily raised interest rate expectations, as did the news that Mervyn King, the Governor, had not voted for the quarter-point cut in early August.
However, Simon Tyler, of Chase de Vere mortgage management, said: "Fixed rates have been coming down for the last week or so. A fall of around 0.2 percentage points is not untypical."
There was little call for either a raise or a cut in interest rates this month. There was a slight pick-up in house prices and higher inflation was balanced against weaker figures in the service sector.
The Bank's central projection, based on unchanged interest rates, is that growth will pick up to beyond 3pc and inflation will hold to 2pc in the two-year timeframe. This would appear to indicate that the only way interest rates would move is upwards.
Simon Rubinsohn, an economist at Gerrard, said: "We suspect that inflation could climb to 2.5pc in the August report, which is due to be published next week.
"Significantly, since utility bills are set to rise in September, this is unlikely to be the top of the inflation cycle."
However, economists at the Royal Bank of Scotland said that since growth will remain weak, inflation will remain under control and a quarter-point cut is likely next year.
By Malcolm Moore