Interest rates 'to fall by Christmas'

Mortgage advisor John Charcol has predicted interest rates could fall later in the year, and advises borrowers to seek variable rate deals for the foreseeable future.

Given the decision by the Bank of England not to alter the base rate of interest yesterday, Charcol now expects cuts later in the year.

"The fall of nearly 20 per cent in the oil price from its recent peak, coupled with a sharp fall in other commodity prices, provides some optimism that inflation will start to fall later this year, giving the monetary policy committee (MPC) scope to resume their rate cutting to try to fend off recessionary risks," explained Ray Boulger of John Charcol.

The Bank of England's Quarterly Inflation Report is due to be published next Wednesday, and will perhaps offer an insight into the future direction of rates, argues Charcol.

"The MPC will have been aware of most, if not all, of the content of this Report and it should provide a good indication of the near term trend in Bank rate," continued Mr Boulger.

However, the chancellor's perceived dithering over the future of stamp duty was given short shrift by the mortgage broker.

"With the chancellor's confirmation he is considering a temporary suspension of stamp duty, the already very low number of transactions in the housing market, approximately 70 per cent down on last year, will diminish further until he sets out his proposals," argued Mr Boulger.

"After all who will want to commit to a property purchase now when it is probable that by waiting a few months stamp duty costs possibly running into tens of thousands of pounds can be avoided, and with the chancellor's blessing."

The government has, however, since moved to dispel speculation.

In the meantime buyers should seek attractive variable deals, which will mirror any potential MPC cuts.

"Borrowers who want or need the security of a fixed rate mortgage need be in no hurry to buy one, but with lenders having cut some tracker rates as well, current rates on the best tracker mortgages are also more attractive than a month ago, especially for borrowers who don't need to borrow more than 75 per cent of their property's value.

"Trackers continue to offer the best value," concluded Mr Boulger.

Chris O'Toole