MPC to follow Fed's lead - AMI

The Bank of England will follow its US equivalent’s lead and cut interest rates this month, the Association of Mortgage Intermediaries (AMI’s) quarterly report predicts.

The AMI says the housing market is slowing down but expects lower transactions will be more likely than sharply falling house prices.

It adds it expects re-mortgaging to hold up better, even if borrowers do not seek to withdraw equity from their homes to the same degree.

In addition, the AMI says falling interest rates will boost confidence in the second half of the year.

Richard Farr, AMI director, says: “With continuing volatility in the financial markets and steep rate cuts by the Fed the UK will also look at reducing rates.

“However, as the Bank of England recognise, it is a difficult balance keeping inflation under control with increasing energy, food and fuel prices and at the same time looking to cut rates to boost the economy.”

The AMI also says in its report that money markets are still volatile despite the record early 0.75% Fed rate cut. It says inflation is close to target but will, too, likely be volatile.

Farr adds: “Even if house prices do fall for the whole year, they will not do so every month, so we should expect mixed signals to continue from the various market watchers.

“Nevertheless, in the absence of forced sellers, there is little impetus for prices to fall rapidly. Rising mortgage delinquency will push a few homeowners onto the housing market, but it would take a large rise in unemployment combined with rising mortgage costs to turn a trickle into a flood.

“With interest rates falling now, pressure on mortgage borrowers should start to ease, as long as lenders follow the Bank of England's moves.”

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