Mortgages fall as Bank trims rate
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Your support makes all the difference.THE BANK of England cut interest rates for the fourth time in four months yesterday. The quarter-point reduction took them to 6 per cent, the lowest since the general election.
Mortgage lenders rushed to follow the Bank's move, bringing down monthly payments to their lowest level since December 1996. Most lenders, including the Nationwide, Halifax, Bradford & Bingley and Virgin, cut their rates by a quarter of a point with effect from 1 February.
A typical borrower with a pounds 120,000 repayment loan over 25 years will pay pounds 874.55 from next month. That represents a saving of pounds 117.03 per month since October, when the latest round of interest rate cuts began.
Although good news for homebuyers, the announcement by the Bank's Monetary Policy Committee got no more than a lukewarm welcome from business and unions. The general reaction was that the Bank was doing too little, too late.
John Monks, general secretary of the Trades Union Congress, said: "While the MPC is hesitating, workers across the UK are losing their jobs."
Kate Barker, chief economist at the Confederation of British Industry, said: "A further quarter-point cut is welcome in itself, but is unlikely to dispel industry's New Year blues."
But most City experts believe the Bank, which said the continuing economic slowdown explained its decision, will announce another reduction in the cost of loans next month. Interest rates are expected to fall to 5 per cent by the summer.
The City would favour an early move by the Government to basing the Bank's inflation target on the European consumer price index. As The Independent reported yesterday, that would give the monetary committee more leeway to reduce Britain's loan rates.
The Prime Minister said the economy would be able to face the expected downturn this year with low interest rates and low and stable inflation. "Obviously we are pleased with the news of the cuts in interest rates," Mr Blair said.
However, the Shadow Treasury chief secretary, David Heathcoat-Amory, said the move showed the Bank believed the economic outlook was weaker than the Government admitted. Echoing the comments of many in industry, the Liberal Democrat Treasury spokesman, Malcolm Bruce, said the Government and Bank should work together to get rates down to the new "euro-zone" level of 3 per cent.
Most UK mortgage lenders now charge a standard variable rate of 7.45 per cent, but the lowest variable rate, for existing borrowers at the Coventry Building Society, dropped to 6.7 per cent.
Lenders welcomed yesterday's cut as a boost to the faltering housing market.
Michael Coogan, director-general of the Council of Mortgage Lenders, said: "It will help borrowers and lenders at a time when other economic data are less positive."
Most lending institutions held back from cuts in savings rates. However, Bradford & Bingley dropped savings rates by an average of 0.75 percentage points.
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