Base Rate reduced to 2% 04.12.2008

Author: Steve Olejnik Posted on: 04 December 2008

So, as predicted here some weeks ago, Base Rate has been cut by another 1%. Bearing in mind Mervyn King’s comments earlier in the month, the reduction is no real surprise and is confirmation (as if we needed it!) that we are heading for tough times in 2009.

All eyes now on the 3m LIBOR rate tomorrow and it will be interesting to see how the money markets react. 3m LIBOR yesterday stood at 3.79% and likely to be around 3.72% today. What we need now is for the gap between Base Rate and LIBOR to continue to narrow although it may still be a few months before we go back to the traditional spread of 15-20bps.

Today’s Base Rate reduction is great news for those on Base Rate tracker mortgages although with some lenders, collar conditions will now apply. It would not be a surprise to see a further cut early next year before rates level out and then start to increase slowly in 2010. SWAP rates continue to fall and provide an indication of the cost of longer term money and suggest that early next year could well be the right time to lock into a decent 3 or 5 year Buy to Let fixed rate mortgage. What is certain is that in the lead up to Christmas and despite today’s Base Rate cut, we are unlikely to see any real movement in mortgage products until January at the very earliest.