Mortgage experts say rates may drop further

14 October 2008

A number of mortgage experts have said that interest rates may drop further in the next few months, as continuing economic turmoil may lead the Bank of England to make more base rate cuts.

Economists believe the base rate may drop significantly in the coming months, forcing down rates on tracker mortgages and potentially encouraging lenders to lower rates on SVR (Standard Variable Rate) and fixed-rate mortgages.

Speaking to The Times, Mark Dampier of independent adviser Hargreaves Lansdown said: “Interest rates will halve over the next six to nine months, to 3 per cent or lower. The question is not whether there will be a recession, but how severe the recession will be, so there will certainly be another half-point cut before Christmas.”

However, experts have warned that mortgage rates are more closely tied to the Libor – the rate at which banks lend to one another – and it may take a while for the effects of base rate cuts to trickle through.

Simon Ward, an economist at New Star Asset Management, told The Times: “It is likely that the Libor will come down with very aggressive cuts in the base rate, but it will take about a month for us to know whether the steps taken by the Government and the Bank of England have improved the flow of money in the financial system.”

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