Interest Rate Update 12 October 2011

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Mortgage rate future uncertain

Remortgaging Up 30% on Last Year

Remortgaging approvals were 30% higher in August than they were in August 2010, according to new figures released by the Council of Mortgage Lenders (CML). Remortgaging deals were also 9% higher in August than they were in July.

The CML's figures also showed that the number of house purchase mortgages rose by 7% in August from July but was only 2% higher than in August 2010. This minimal year-on-year increase is a marked contrast to the huge leap in remortgaging approvals and suggests that most homeowners are seeking to batten down the hatches rather than move house.

Home movers experienced little change in loan-to-value (LTV) ratios, with the average deposit remaining unchanged from July, at 31%. For first-time buyers, there was a 5% rise in mortgage approvals in August compared to July's figures.

The average deposit for a first-time buyer remained unchanged at 20% and the average income multiple increased marginally from 3.17 to 3.20.

Mortgage Rates Fall On High LTV Deals

The average mortgage rates on deals with a high loan-to-value ratio (i.e. a small deposit) have continued to fall, according to Moneyfacts.

The average rate on a two year fixed-rate 90% deal is currently just 5.39% - the lowest level since January 2008 and significantly less than the average 6.05% a borrower would have paid six months ago.

The story is similar with five year fixed-rate deals at 90% LTV. Six months ago the average rate for such a deal was 6.87%. Today, the average is just 5.87% - a full 1% lower.

Louise Holmes, spokesperson for Moneyfacts, commented that "Lenders have begun to launch more competitive products to borrowers who during the height of the credit crisis had pretty much given up on the prospect of owning their own property."