Homeowners may get their Christmas wish as BOE hints at interest rate cut

22 November 2007
Homeowners could be in for a financial break before Christmas if the Bank of England cuts interest rates following five hikes since last year which has caused mortgage repayments to soar.

The possibility of a pre-Christmas interest rate cut is looking more likely after it was revealed that the Bank of England Deputy Governor, Sir John Gieve, called for an immediate cut over two weeks ago.

According the Bank of England minutes from this month's Monetary Policy Committee (MPC) Meeting, two out of the nine MPC members voted to cut rates by 25 basic points.

The MPC finally voted 7-2 in favour of leaving rates steady at 5.75% - a vote that was anticipated by City economists. However, despite the final outcome, the overall sentiment in the minutes gave the impression that a cut was still on the cards.

"Weighing up all these arguments, most Committee members concluded that Bank rates should be left unchanged this month. However, some members thought that an immediate cut was warranted," the minutes said.

Millions of mortgage holders have found that their monthly repayments have rocketed, especially those who have come out of their fixed rate agreements and are now struggling with paying the inflated rates of interest which reached their highest level for six years in July.

However, there are others who feel that a cut in rates will not have any impact on mortgage rates. Paul Holmes, Chief Executive Officer of property company, National Homebuyers comments: "The average standard variable rate, if you look at all the lenders, is 7.75 per cent. So it's over two per cent above the base rate.

"The lenders are completely detached – the Bank of England might lower rates tomorrow, but the lenders would say: 'That's fine, but we still need to make a profit'. There is a dislocation between the Bank of England and what lenders lend at. It's completely different now. That was one of the conventions that was broken after this credit crunch," adds Mr Holmes.

Furthermore some analysts are predicting a December move, but the concern is the Bank of England will want firmer evidence that the economy is slowing especially as inflation continues to creep higher thanks to rising energy and food prices suggesting that the MPC may hold off for the next few months.

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