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Borrowers benefit from delay in lifting base rate

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  • 29/07/2002
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Borrowers look set to benefit from competitive fixed rate mortgages until the stock markets recover....

Borrowers look set to benefit from competitive fixed rate mortgages until the stock markets recover. At least seven of the county’s biggest mortgage lenders have cut their fixed rates, by around 0.3%, in the belief that any rise in base rates will be delayed.

Eddie Smith, director of business development at Verso, said: ‘It is unlikely the Bank of England will raise rates. Inflation is under control, and with the recent mass-ive losses on the Stock Exchange, it will want some thinking time. I think we’ll see a small increase towards the end of the year, which could mean a continuance of the lowest mortgage rates for over 35 years ‘ which can’t be all bad.’

Laurence Sanders, economist at Bristol & West, agreed the rate freeze could present an opportunity for borrowers: ‘Lenders believe they can buy tranches of money over the next few weeks, at a good rate to fund fixed rate mortgages. This would seem to be a good opportunity for borrowers. How long it will last depends on how long equity markets remain weak, but many borrowers have taken the view it will last a few weeks,’ he said.

The base rate’s future, and the cost of fixed rate funds, depends on the volatility of stock markets.

Sanders added: ‘I was looking for a base rate rise to occur next month, borne out by the minutes of the Monetary Policy Comm-ittee (MPC), which said, ‘at current level interest rates, inflation is expected to rise quite steeply above target.’ There is a need for a rate increase, but the MPC cannot ignore what is happening in the equity markets.’


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