Interest Rate Update to 18 August 2010

UK Interest Rate: 0.5%

UK Interest Rates Forecast: No change in near future

MPC Vote 8-1 to Leave Base Rate Unchanged

The minutes of the latest meeting of the Bank of England's Monetary Policy Committee show that for the second month running, members of the committee voted 8-1 in favour of leaving the base rate unchanged at 0.5%.

MPC member Andrew Sentance was once against the decision, believing that a rise of 0.25% would be more appropriate.

The MPC minutes also noted that "credit conditions had not improved as much as previously expected" – a reality that will be familiar to many would-be house buyers who cannot afford the deposit required to secure a competitive mortgage deal.

Low Fixed Rates Mask High Arrangement Fees

Anyone looking for a fixed-rate mortgage deal at the moment will find that there are some really attractive interest rates being bandied around –some lenders are now offering two-year fixed deals with rates of well under 3%.

However, these lenders are not always quite so boastful about the arrangement fees for their deals – which can often be well in excess of £1,000.

If you are looking for a new fixed-rate deal, it's important to factor in the cost of the arrangement fee, especially if you have a relatively small mortgage. Add up the total cost of your repayments plus the arrangement fee over the fixed-rate period – you may find that a slightly higher rate combined with a lower arrangement fee saves you money overall.

Rate Rises May Be Further Away Then Expected

The market's expectations for interest rates seem to be weakening, despite inflation stubbornly remaining above 3% in July. Some economists are now expecting rate rises to be pushed back into 2011, rather than taking place late in 2010 as was previously forecast.

This could be good news for homeowners, as it should help mortgage rates stay low.