Although Bristol & West (B&W) expects the next move in base rates to be upwards, it claims those lenders who have recently increased the rate payable on their fixed rate mortgages may have jumped the gun.
Dominic Toller, head of marketing, lending at B&W Mortgages, explained: ‘Three weeks ago, the cost of money for fixed rates went up quite a lot. Over the last week a lot of lenders have pulled their two- and five-year fixes. We just about held on to ours and thanks to US data released on 6 December, and some weak German data, we have seen those rates come back down again.’
He added: ‘Five-year fixes were around 4.6%, they went up to around 4.85% and are now back to around 4.68%. You could say some lenders have been proved premature. We are pleased we decided to leave our rates because we are out there with some of the best on the market.’
B&W’s assessment is based on its Expert-I ‘ a round-up of economic data relevant to the mortgage market. It noted that, following a 0.5% cut in US base rates, after poor consumer data, newer information shows growth of 3% over the last quarter ‘ better than expected. Therefore the next move is expected to be upwards, with implications for longer-term fixed rates.
UK growth was up 0.8% to 1.8% last quarter. Laurence Sanders, economist at B&W and author of the report, said: ‘The UK central bank will probably increase base rates by 0.25% next April or May. We forecast that the UK base rate will reach 5% by the end 2003.’
Sanders added: ‘Next summer, debate on the euro could produce a temporary decline in longer-term fixed rates. The threat of military action in Iraq could have the same effect in coming months.’