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The 9 members of the grandly named Bank of England Monetary Policy Committee (MPC) meet again tomorrow to discuss interest rates and will need to weigh up a number of conflicting economic signals before deciding on whether to further increase the cost of borrowing. Given the British obsession for all things property related these monthly meetings are now firmly established in the nations psyche as a nail biting spectacle. The minutes of Augusts discussions have now been carefully digested and show that there was unanimous agreement to raise rates for the 5th consecutive time to 4.75%. Looking ahead to this months meeting the decision will not be so easy to call. Recent data suggests that previous increases in the cost of borrowing have begun to have an effect and are beginning to slow runaway house price inflation. There was a dip in new mortgage lending in August and a marginal slowdown in house price rises. The MPC will need to view these figures against a backdrop of factors that may encourage them to raise rates further to dampen the economy -strong wage growth (ironically fuelled by workers wanting to cushion the blow of mortgage increases), manufacturing orders at a 9 year high and continually strong consumer spending (only dented by the fact that August was a wash out.) On balance it does now look as if rates will be held this month and this has given a welcome breather to contractors who have been trying to second-guess the financial markets. The future course of rates remains far from certain and the preferred route for new purchasers and those looking to remortgage has been the fixed rate mortgage. Borrowers have been locking in mortgage payments at what are, historically, still very low levels and with online mortgage agreements now available from many lenders/brokers, fixed rates can be secured right up to time of the MPCs decision. The last couple of days before these meetings have seen frantic activity of late. So what do the interest rate rises mean for house prices? Journalists love a sensational headline and its far harder to sell newspapers with an 'everythings fine' message than a story of impending doom. Contrary to Fleet Street scaremongering the Halifax (the UKs biggest mortgage lender) report that the market looks set for a so called 'soft landing'. Recent data suggests that prices will level, rather than drop, due to fundamentals such as the fact that we live on a small, crowded island with more single occupancy households than ever before. Home-ownership is deeply embedded in the British mindset and the alternative of renting and paying someone else's mortgage in the process just doesn't seem to sit right with us. A bit of sanity in house price inflation is good for the long term sustainability of the market and should be welcomed. The trick for homeowners will always be to ensure that the cost of their mortgage remains as low as possible. Article provided by Contractor Money, the Contractor Specialist Mortgage Broker. Click here for more information. Sep 8, 2004 Email this article Printer friendly page Previous Page
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