As widely predicted, the Monetary Policy Committee has again voted to hold the Bank of England Base Rate at 0.5% today.

There has been growing talk that there are now definite signs of recovery, especially with the news this week of a growth in the service sector for the first time in a year, according to The Chartered Institute of Purchasing and Supply’s (CIPS) services survey.

Taken together with the Halifax reporting that house prices rose by 2.6% in May, the Bank of England stating that there was an 8% rise in the number of mortgages approved for house purchases, as well as the Nationwide Index of consumer confidence jumping further, there do seem to be some reasons to be cheerful.

However, although there are grounds for cautious optimism, the availability of mortgage finance, especially for first time buyers with smaller deposits, remains constrained.

3 month LIBOR, (the rate at which banks lend to each other that was so out of kilter during the main thrust of the credit crunch), is now back to around 0.7% above Bank Base. This is the upper limit of “normality” we have seen in the past, so in this respect, the credit crunch seems to be at an end. The aftershocks however, are still being felt in banking boardrooms across the world, and whilst there has been a definite easing in some respects, lending will continue to be modest at best.

What is clear, however, is that the smart money is now firmly on longer term fixed rates, and although there are 2 year fixes from as low as 3.49%, 5 year fixes are the most popular request. Fixing at around 4.5% for 5 years in any market is competitive, but especially so when competition between lenders is stifled, and the next interest rate move will be an upwards one.

The cheapest tracker product is still at a low of 2.49% for those who think rates are not going anywhere in the near future, but if these positive specks of light turn into a full ray of sunshine, rates may increase sooner than many had first thought.

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