Mortgage rates 'likely to reduce'

05/08/2009

An expert has predicted that lenders are likely to follow Nationwide and reduce mortgage rates.

Phil Perry, director of Ark Financial Planning, said that the building society is a "big player" among lenders and it is probable that other mortgage providers will follow its lead.

Nationwide's 0.5 per cent reduction in fixed and tracker mortgage rates was announced and came into effect yesterday (Tuesday, August 4th).

Mr Perry said that the decision was surprising, given that the Bank of England could increase its base rate next week, which would lead to a rise in fixed-rate mortgages.

He added that it is difficult to "try and second guess the mortgage market at the moment", because it is not known what funds are available at present.

"All indications are suggesting that interest rates are going to rise. It's a case of when," Mr Perry explained.

The Bank of England cut its interest rate to the present 0.5 per cent in March.

Kevin Still, director of EuroDebt, said: "There remains a major gap between the high street rates for new mortgages and the base rate. If access to funds by the major mortgage providers begins to ease then you would expect them to be less protective of their existing funds and start lending again to lower risk clients.

"For those that have some detrimental history on their credit file through the recession then they may still find it hard to switch mortgage products. If base rates rise the lenders will be extremely quick to pass these on to borrowers and this will have an impact on disposable income.

"EuroDebt has warned homeowners not to take for granted the lower interest rates they are currently enjoying for too long. One of the dangers is that some of the measures that government put in place to tackle the recession may hurt a number of people in financial difficulty as we emerge out of the recession.

"We will probably see unemployment and personal insolvencies continue to rise, despite positive indicators like house price increases and increased lending that may be heralded as signs that we have made the economic turn in a 'U' shaped recovery."

Tags; Debt Management and Banking,

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