Base Rate remains unchanged

Responding to the decision, Mehrdad Yousefi, head of intermediary mortgages at Alliance & Leicester, said: “Despite a number of global uncertainties, it comes as no surprise that the base rate remains unchanged this month. However, the recent interest rate rises by the US Federal Reserve and European Central Bank is evidence of the continuation of monetary tightening in the financial markets worldwide.

"The immediate signs are that demand for housing will remain robust over the next few months, although there has been a lull in activity during the World Cup period. The view is, however, that confidence and activity are closely associated with interest rate movements and expectations.

"Existing borrowers looking to refinance or move up the property ladder should take advantage of tracker deals that are currently priced below the base rate. For first-time buyers and those on tight budgets, there are still competitive two-year fixed-rate mortgages on offer from many lenders."

Ray Boulger, senior technical manager at John Charcol, commented: "Mervyn King’s recent comments to the treasury select committee reinforced the already strong expectation of a “no change” decision today and so any change in base rate would have been a major shock. The UK housing market is steady, although the modestly rising national figures mask some sharp regional fluctuations. The MPC will have factored in the probability of the year-on-year house price indices falling in the autumn as the strong growth seen in the last four months of 2005 falls out of the year-on-year figures.

"We have seen international rates rise in recent times and although it appears US rates are close to peaking, a rise in the European Central Bank rate could come as early as today. Overseas interest rates have a significant impact on the UK economy as rising rates elsewhere weaken the relative countries economies, thus reducing demand for our exports and also increasing competition from imports - as overseas competitors try to make up for reduced demand in their home markets. Although predictions from the money markets continue to point to an increase in base rate before the end of the year, the above factors suggest this is not a forgone conclusion but next month’s quarterly inflation report will be the key influence on the Bank’s interest rate policy for the following three months.

"Fixed rate mortgages now look expensive unless base rate rises above 5 per cent. However, there will always be a large market for fixes due to many people wanting the security of knowing exactly what they are paying out each month. Trackers and discounts are a better option for those wanting the cheapest deal, but able to withstand an increase in payments should interest rates rise by 1 per cent or so. An ideal combination is a tracker or discount with a droplock facility, allowing the borrower to switch to any of their lender’s fixes at any time if and when they consider the fix offers better value.

"We are currently offering an exclusive drop-lock option on a flexible lifetime tracker from Woolwich at Bank Base Rate + 0.29 per cent, with no arrangement fee and no early repayment charges (ERC), available for loans up to 75 per cent and with a minimum size of £100,000. This also has the benefit for remortgages of a free valuation and free legals and because it is a lifetime tracker gives borrowers complete freedom of as to whether and if they switch to a fixed rate. Also, because it is ERC free borrowers can easily switch lenders if Woolwich aren’t offering competitive rates at the time they want a fixed rate."