Homeowners hold their breath over rates

The decision to keep the rate at this level had been widely anticipated in light of current market conditions, with many suggesting that the MPC is now adopting a ‘wait and see’ approach in order to fully assess how the global credit squeeze is impacting upon the economy.

This month’s decision was of great importance to thousands of nervous borrowers who are struggling to meet their monthly mortgage repayments, especially with unfavourable reports of house price growth beginning to stall.

Whilst numerous critics have spoken out in support of further rate freezes in the coming months, some industry experts believe the only way to remedy the situation now is to start reducing it back down.

David Bexon, managing director of SmartNewHomes.com, believes this decision will not be well received by homeowners, especially those on existing fixed rate deals, and has urged the MPC to start making the necessary rate cuts.

“This month, interest rates should have been reduced to restore confidence throughout the market as whole,” he said. “With a fall in the number of new mortgages taken out last month it is clear that new buyers are being put off by the current uncertainty. I urge the MPC to bring better news next month and vote for a cut.”

Certainly the financial anxiety currently being experienced by the majority of Brits has made September an unpleasant month.

Inflation has now dropped back to 1.8 per cent, affording homeowners a glimpse of light at the end of the tunnel as the MPC hits its objective of pushing it back down below 2 per cent.

However there are fears that this dramatic drop from the 3 per cent we saw only a few months ago to the current level will have a destabilising effect on house prices with Halifax reporting a 0.6 per cent dip in September in its monthly index.

David Kuo, head of personal finance at Fool.co.uk, concluded: “Arriving at a decision about interest rates this month must have been especially tricky given the turmoil in the credit market prompted by the near collapse of Northern Rock, the impact of high oil prices on inflation, and the risk of recession brought about by the credit crunch.

“However, homeowners should not concern themselves too much with what the Bank of England may or may not do. Instead, they should focus on their own finances amidst the uncertainty in the credit market.

“There have been indications that borrowers with less-than-perfect credit records may be penalised by less favourable deals as banks tighten their lending criteria. However, the mortgage market remains competitive with attractive deals on offer.

“Homeowners should nevertheless try to throw as much as they can afford towards their mortgage especially if they are approaching the end of fixed-rate deals.”