Saturday, May 31, 2008

Mortgage rate cuts not a sign of things to come

According to a recent report the mortgage interest rate cuts applied by a couple of lenders recently should not be interpreted as a sign of things to come by consumers. Whilst the Bank of England has cut the base rate three times in the past five months, taking it from 5.75% to 5%, mortgage interest rates have continued to rise, and many lenders have failed to pass on the full rate cut to existing borrowers. However, recently two major lenders cut the interest rate on some of their mortgage loans products, which may have given some consumers the impression that mortgage rates were at last about to fall.

The two banks that have cut mortgage interest rates are Abbey and Nationwide. One mortgage broker stated: "Regrettably this is a flash in the pan. These cuts will be based on money market rates prior to Tuesday's CPI figures and the Bank of England's inflation report. Unfortunately it's not the start of a trend and, worse than that, I think lenders will start putting fixed-rates up again." He said that consumers should avoid getting too excited about the rate cuts, because the trend was unlikely to be a long term one. In fact, he also added: "I would be very surprised if the Abbey and Nationwide deals last more than a week or so."

Another industry official said that it would be premature to see the rate cuts by Abbey and Nationwide as a sign of things to come, stating: "These lenders have benefited from a short low point in the swap rate markets. However, over the past five days we have seen swap rates increase by over a third of a per cent. "It will only be a short while before we see these rate increases filter through to the high street. Consumers are still under increasing pressure to find a suitable mortgage deal, and only this morning we have seen the number of mortgages decrease to an all-time low since the credit crunch began, today standing at 3,846.

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