Base Rate Expected To Be Held At 5.00%

Aug. 6, 2008 - PRLog -- It is widely predicted that the Bank of England's Monetary Policy Committee (MPC) will hold the base rate steady at 5.00% when it announces the outcome of its deliberations on 7 August.

Neil Young, CEO of Property Portfolio Managers, Young Group, comments; "As ever, the MPC is engaged in a delicate balancing act between keeping the base rate at an appropriate level for the current economic conditions and ensuring that inflation is held in check.  Inflationary pressure is at a level such that the MPC could not reduce the base rate without running serious risk of inflation pulling further away from the Government's target of 2.00%.

"Inflation is the principal focus of the MPC, so the widely held view that they will vote to hold the base rate at 5.00% should be no real surprise."

"Base Rate Has Little Impact on Buy-to-Let Mortgages"

Mortgage rates, particularly for buy-to-let mortgages have not been closely correlated to the Bank of England Base Rate for some time.  Indeed, in only the last month, despite the base rate being static at 5.00%, tracker rates for buy-to-let mortgage products from well known lenders have dropped three times, some by a total of 0.60% and for the first time since the early part of this year, stand at below 6.00%.  On an average interest only mortgage of £200,000, this represents a saving of c. £100 per month.

Neil Young goes on to point out, "It's encouraging that some of the largest lenders have reduced the interest rate on buy-to-let mortgages.  It shows that they're ‘open for business' and actively seeking new mortgage instructions.  This is another indication that the mortgage market is returning to some level of normality, following the industry's clampdown in the wake of last year's credit crunch.

"Investors who approach property investment in the same way that they would any other asset class will be looking at the overall trend in interest rates rather than short term fluctuations.

"The effect of last year's credit crunch resulted in mortgage funding becoming more difficult to come by as lenders, rightly, tightened their lending criteria and increased the due diligence process on applications.  But, a purchaser with a good credit history and a realistically priced property has always been able to find good mortgage products from lenders.

"Although the conditions created by the credit crunch have made it more arduous and time consuming for those seeking funds for property purchases, the shake out in the mortgage market will doubtless result in a stronger and more robust market.  It is encouraging to see sense coming back to the market."

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A London-based wealth management company with a focus on a single asset class; residential property.