UK Interest Rate: 5.5%

UK Interest Rates Forecast: Likely to increase to 5.75% in July or August

Bank Governor Warns Borrowers

The Governor of the Bank of England, Mervyn King, has warned borrowers not to push themselves too close to the limits of affordability when taking on new loans. Speaking to the Welsh CBI he said that, "Obvious though the point may seem, it is unwise to borrow so much that the repayments are affordable only if interest rates remain at their initial levels."

He also discussed his ongoing concerns over upside risks to inflation, observing that although inflation has fallen slightly, there remain a number of "elevated" risks. King said that if these risks persist, the Monetary Policy Committee may well "need to take further action" - in other words, raise interest rates again.

A further increase in rates to 5.75% is widely expected by economists and the stock market and many observers believe that rates will hit 6% by the end of 2007.

Remortgages Up As Higher Rates Bite

Higher interest rates have resulted in a dramatic increase in remortgage activity, according to new data from Spicerhaart Financial Services. The company reported a 50% increase in the number of remortgages in May, with remortgaging accounting for 28% of the mortgage market in May - up from 18% in April.

Many borrowers are opting for fixed-rate mortgage deals as the cost of higher interest rates starts to affect their household finances. Stephen Cox of Spicerhaart said that further increases to interest rates would be likely to do serious damage to the mortgage market.