May Base Rate Update - Mortgage Advice Bureau

Published : 12th May 2011


Higher Loan to Value Products Improved

Sonia Shortland of Thomas Johnson Financial Services, part of Mortgage Advice Bureau comments on the latest Bank of England base rate decision.

The first quarter growth figures for the UK economy showed a welcome increase following the reduction in the fourth quarter of 2010. This increase in the overall size of the UK economy was however less than impressive at 0.5%.  This will have been a factor in the decision making process of the Monetary Policy Committee in holding the bank base rate for a 26th consecutive month at a half of one per cent (0.5%).

The economic data appears to have prompted the majority of the central bank rate setters to decide that any rise in interest rates, combined with recent changes to personal taxation and welfare payments taking effect from last month, would have been a hurdle too far for consumers to cope with at this point in the economic cycle.

The majority of forecasters are now suggesting that any rise in the base rate is likely to be held until the summer. Although a rise in interest rates has been avoided once again in the UK this month, April saw an increase in the base rate of interest (from 1.00% to 1.25%) in Euro countries.  This was specifically to combat the rising threat of inflation where the headline rate is significantly lower than that of the UK.

The Bank of England has chosen once again to maintain the status quo because of fears of the fragile state of the economy. However, with inflation here significantly above that of our Eurozone neighbours the reprieve may be short lived.

In terms of pricing of mortgage products in May versus April, the price of the average 2 year fixed rate has decreased from 4.52% to 4.50% whereas there has been an increase in the price of the average 5 year fixed rate from 5.59% to 5.62%. The average two year tracker has fallen back again slightly to 3.40%, an all time low.

Following the recent public holidays and the impact this had in reducing borrower numbers for several weeks, we have seen significant lender mortgage re-pricing activity with the majority of rates being lowered. Lender appetite for slightly higher Loan to Value products continues to improve with several new providers offering 90% Loan to Value products and even a 95% deal on offer.  This means potential buyers without significant levels of deposit have possible options to enter the market. It should be said that borrowers contemplating these products need to have completely clean credit histories as lender underwriting requirements at these levels are rigorous.

Mortgage product numbers overall have continued to improve with the number of deals increasing by 20% compared to the beginning of this year and more than 50% ahead of the corresponding period in 2010.

Sonia is at Thomas Johnson Financial Services, part of Mortgage Advice Bureau. For further information on how the latest base rate decision affects you, please call 0115 950 6688, or email on

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