Interest Rate Update 15 January 2012

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Low mortgage rates for buyers with deposits

Bank Rate Remains At 0.5% In January

The Bank of England's Monetary Policy Committee has voted to leave the Bank Rate unchanged at 0.5% in January. It has remained at this level since March 2009 – almost three years.

Mortgage rates are not as closely linked to the Bank Rate as they used to be and are more directly affected by money market conditions and consumer demand. Lenders can manipulate mortgage rates to make certain deals unattractive to new customers without withdrawing them from the market.

Will Mortgage Market Review Change Lending in 2013?

The Financial Service Authority's Mortgage Market Review is aimed at producing a new set of rules by which mortgage lending will be regulated in the UK.

It is still ongoing, and its initial proposals were criticised by many in the mortgage industry as being too restrictive and unnecessary, given the increased levels of self-policing displayed by mortgage lenders since the credit crunch.

However, the FSA has persisted, revising some proposals and persisting with others. The details of the new rules look set to be finalised this summer and are likely to take effect from 2013. It's too early to say what the exact changes will be from a homeowner's point of view, but a number of points seem likely.

Income will be strictly tested and lenders will ensure that borrowers are not gambling on future house price rises to help them repay their mortgage. This means deposits are here to stay, due to the protection they provide against negative equity.

It will also be necessary for lenders to ensure that borrowers have sufficient spare financial capacity to continue repayments if interest rates rise. Overall, these new rules are likely to echo many of the changes lenders have already put in place – and prevent them from relaxing the rules too much next time the housing market booms.