Mortgages Set to be Even Cheaper in the New Year

When interest rates were cut in early December all nine of the Monetary Policy Committee members voted for the cut and that unanimous vote has lead to analysts predicting another cut in early 2008. Welcome news indeed for anyone with a mortgage, as many lenders immediately announced a reduction in their interest rates following the MPC decision.

The Bank of England interest rate now stands at 5.5% following the quarter point cut, and Decemberâ s meeting was the first time the nine policymakers have been in unison since November 2001. That was a major surprise to many leading economists who thought that at least two or three of the policymakers would oppose the cut. The minutes of their meeting also show that discussions included whether the prospect of slower growth in the economy justified an even bigger rate cut.

The 6th December interest rate cut was the first reduction since August 2005, and designed to help overcome slower economic growth and the devastating impact of the global credit crunch. Economist at Bear Sterns, David Brown said:

â With the Monetary Policy Committee voting unanimously in favour of the reduction, a back-to-back cut should be on the cards at the January meeting. It looks like deepening concerns about the spreading risks from the credit crunch have trumped the fears about inflation.â

The Bank of England considers that the worsening state of the financial markets is a bigger risk to the economy than rising prices and inflation. Justifying the cuts the Bank issued a statement saying that rates were cut because â signs of slowing growth were already apparent in the industrial world.

â But, it also added that a half percentage cut would have increased the risk of inflation, and thatâ s why it only cut the rate by a quarter per cent.

Of course, the cut was welcome news for those holding UK mortgages, as it eased the pain of five successive increases during the preceding two years which had significantly increased monthly repayments. The reduction provided some relief in the run up to Christmas, and the real prospect of a further cut in January, cutting the cost of mortgages further is even more good news.

Even though if we compare mortgages to this time two years ago they are still significantly more expensive, at least one rate reduction and the prospect of a second means that the future is looking brighter for borrowers and the UK economy.

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