Base Rate set to hit record low - 13.11.2008

Author: Steve Olejnik Posted on: 13 November 2008

This week, Bank of England Governor Mervyn King gave a strong warning that the economy could contract by 2 percent next year. He vowed to reduce Bank Base Rate to “whatever level is necessary” to stave off a deep recession and this has lead many to interpret that rates may go as low as 0%. So what will this mean for mortgage rates?

Since the shock 1.5% Base Rate cut, wholesale borrowing costs have fallen and 3m LIBOR today stands at 4.2%. A move in the right direction and we are starting to see the residential mortgage lenders bring out revised tracker products with C & G leading the way with a rate of 4.39% (Base rate + 1.39%) for 2 years at 75% Loan to Value. Abbey have also brought out a new Tracker this week at 1.99% over Base and others are expected to follow.

Swap rates also continue to fall prompting lenders to launch a number of new fixed rate schemes this week with Abbey and Lloyds TSB reducing fixed rates by up to 1%. I would again expect further fixed rates to be launched as Swap rates continue to fall. In the Buy to Let mortgage arena, products will be slower to return than the residential mortgage rates but there is light at the end of the tunnel.

Whilst the gap between Base Rate and LIBOR remains high, I do not expect to see many tracker rates being available in the Buy to Let mortgage market. A few lenders may launch some Base Rate Tracker mortgages next week but I would expect margins to be in excess of 3% giving a product rate of over 6%. Fixed Rates may well be the way forward and as mentioned in previous blog articles, there will shortly come a time when it is worth considering the comfort of a 3 or 5 year fixed rate.

We will continue to keep a close eye on the market and will bring out further updates as and when new products are launched.