Bank Base Rate now seems set for 0.5% cut on Thursday

There is an increasing acceptance that the woes of the economy at large will not be fixed and consumer confidence improved by cuts in Base Rate (BBR) alone. The media are now looking for signs of quantitative easing to improve market liquidity and thereby take the pressure off LIBOR rate that is stubbornly stuck at 2.17% - a premium of 67bps to BBR at 1.5%. Even SWAP rates have started to move up over the past week with 1, 3 and 5 year money at 1.77%, 2.44% and 3.01% respectively. This has tempered the appetite of lenders for reducing their fixed rate offerings ion both the residential mortgage and Buy to Let mortgage sectors.

Indeed even with a 0.5% cut in BBR to 1% there will be several lenders with discounted mortgage offerings completed back in 2007 where the effective pay rate is 0% or, theoretically, -0.01%. Whilst the conundrum of how their systems will cope with this equation is an interesting topic of debate , it does pose very real question marks over the returns to savers where many lenders are currently looking to resource funds for new loans and mortgages.

There is a view gaining support that BBR may reduce to 1% and stay there for a considerable period of time - but this doesn't yet seem to be showing up in SWAP rates. As with LIBOR rate some of these current pricing issues may be down to the reluctance of banks to trade when they still have concerns that some banks may yet face nationalisation.

The net result is that there are some good fixed rates out there which may not improve significantly unless and until such time that the markets find some equilibrium and medium term confidence.