Brian Murphy Blog - Borrowers taking control in uncertain times!

Thursday 14th July 2011

Last week the BOE monetary policy committee surprised no-one by once again holding the bank base rate for the 28^th consecutive month. Although in the last day or so both the Consumer Price Inflation and Retail Price Inflation indices have shown a slight monthly reduction falling back from 4.6% to 4.2% and from 5.2% to 5.0% respectively this is expected to be short lived as the effects of increases in the costs of energy factor their way into the equation.

In contrast the central bankers at the ECB whose members share the Euro have just increased their base rate of interest once again by a further 0.25% to 1.5% to curb inflationary pressure in the Eurozone, where the rate is a mere 2.7%, significantly lower than the UK.

No-one is under any illusions that to increase base rates in the UK at the current time runs the risk of completely killing the fragile growth that the economy is generating. Although the official second quarter growth figures have not yet been released it is widely anticipated that it may be a paltry 0.1% and combined with effectively zero growth when combining the fourth quarter last year and first quarter this year means the economy has now been flat for nine months.

In the last month we have witnessed increased appetite amongst borrowers to remortgage. With rates unlikely to rise in the near term it is perhaps curious that existing borrowers are now refinancing in increasing numbers. Perhaps those borrowers who are able to refinance, generally those with high degrees of equity have recognised that the all time low rates now on offer from many of the nation’s lenders really do offer exceptional value relative to historic levels and therefore people are taking advantage and locking in while they can.

With mortgage products like five year fixed rates in many cases significantly below 4% these are providing hard pressed households some opportunity to take control of and even reduce their spending. At a time when it appears many other elements of consumer spending are spiralling upwards not least food and energy costs the mortgage element and for many the largest commitment is one area where people are able to exercise some control.

Brian Murphy is Head of Lending at Mortgage Advice Bureau

National Mortgage Index – May 2011