Bank of England holds interest rates at 0.5%

Thursday, 08 October 2009 11:56

The Bank of England has maintained its freeze on interest rates at 0.5 per cent.

The decision was widely expected and far more attention is being paid to the progress of the policy of quantitative easing (QE).

The monetary policy committee (MPC) revealed it was maintaining its current QE budget of £175 billion.

As of October 1st, the MPC has created and spent £158.4 billion on a mixture of gilts, corporate bonds and short-term company loans known as commercial paper.

The next decision is expected in November - before the MPC publishes its quarterly Inflation report.

The report will outline how the policy is progressing and where the rate-setter imaging inflation will be heading.

Despite the freeze in interest rates from the Bank at 0.5 per cent since March, competition is now starting to heat up on the mortgage market.

Ray Boulger, at mortgage broker John Charcol, said; "Woolwich, Northern Rock, Abbey, Alliance & Leicester, Principality and Coventry have all announced cheaper deals this week which is good news for borrowers."

He explained mortgage rates are coming down as the three-month inter-bank lending Libor rate has stabilized just above the base rate and swap rates - which are used to set fixed-rate mortgage deals - are falling to record lows.

He advised borrowers who do not want the security of a fixed rate mortgage to look at some of the variable rate deals on the market.

"Although the cost of fixed rate mortgages has fallen a little over the last month most still look expensive in relation to tracker/discount rates, some of which have also fallen during the month," he said.

However, Brian Murphy, at mortgage broker Mortgage Advice Bureau, warned borrowers not to be complacent that rates will hold at 0.5 per cent forever.

"It was a similar mindset when property prices were rising at a record rate and people started to believe that prices would go up forever. We all know what happened next," he said.

"Interest rates will rise, maybe not next month or the month after, but they will rise eventually, and the advice to many homeowners could be fix now if you're on your lender's SVR, rather than try to second guess the market."

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