Interest Rate Update to 19 June 2009

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Bank rate remaining low but swap rates rising

Rising swap rates spell bad news for homeowners

Although the Bank of England is keeping interest rates low – and may do so for a few more months yet – money market swap rates are rising. Swap rates are the interest rates at which banks and building societies borrow money over the short and medium term.

The reason this is important to you is that when swap rates rise, so do the interest rates on fixed rate mortgage deals. The reason for this is simple – mortgage lenders use money borrowed at swap rates to fund fixed rate mortgage lending.

Fixed mortgage rates from most lenders have been rising this week. Many experts believe that mortgage rates will continue to rise through the year, especially as there is a possibility that the Bank of England will raise the Bank Rate later this year to help fund government borrowing.

Bank of England Publishes June Interest Rate Minutes

The Bank of England has published the minutes from the June meeting of the Monetary Policy Committee (MPC). The MPC is the group tasked with setting the Bank Rate, currently sitting at a historic low of 0.5%.

The MPC voted unanimously to leave the interest base interest rate unchanged, based on its conclusion that the upside and downside risks to inflation remain equally balanced.

One potential upside risk to inflation – rising house prices – was alluded to in the minutes. The MPC noted that housing market activity had improved, with a small increase in the number of home loans approved in May. However, monthly loan approvals remain at less than half the average from the last decade. May’s small increase may not be that significant given such low levels of activity and certainly does not pose an inflationary risk yet.

It can be difficult to accurately forecast the movements of the UK property market and to predict forthcoming changes to interest rates – that is why each week we analyze all the latest expert opinion on the state of the UK property market and condense it into a short, easy-to-read UK Property Market Forecast. We also do the same for UK interest rates, and each week produce an Interest Rate Forecast which provides the latest interest rate forecasts and predictions for the UK.

Understanding the factors that are influencing interest rate and property market forecasts can give you an advantage when considering a property purchase. The UK property market is affected by a number of different factors, which combine in sometimes surprising and quite localised ways. Our weekly UK Property Market Forecast takes all of these into consideration and provides a mixture of national and local property market forecasts.

In much the same way, movements to UK interest rates can sometimes be forecast. We provide the latest interest rate forecasts and predictions from leading UK experts, together with comment on what it all means and how factors like inflation and energy prices are influencing interest rate forecasts.