Interest Rate Update 23 December 2009

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Rates remaining low for next six months

Mortgage Lending Falls Despite Low Rates

Despite mortgage rates remaining low, mortgage lending fell by 10% in November from the previous month – a sizeable decrease. The Council of Mortgage Lenders, whose members lend around 98% of UK residential mortgages, said that the fall was too great to be explained by the usual seasonal dip.

However, it wasn’t all bad news. The CML’s Paul Samter said that the market was likely to remain stable next year, despite the end of the stamp duty holiday on properties between £125,000 and £175,000.

Samter said that the mortgage market was likely to remain cautious and restrained next year, saying that “there is no sign of a swift recovery in lending volumes” despite “a modest increase in the availability of mortgage credit recently”.

Fixed Rate Mortgages No Longer Wanted

Six months ago, 80% of the mortgages sold by mortgage broker John Charcol were fixed rate deals – now, that figure is just over 20%. What’s changed?

Sustained low rates and attractive tracker rate deals have meant that the vast majority of customers are no longer attracted to the security and predictability of fixed rate mortgages. Despite the appeal of fixed monthly payments, people seem to have adjusted to low rates and forgotten that they must go up at some point.

The key question is how long will it be until rates go up? It’s starting to look as if low interest rates may be with us for a little longer than expected – certainly for the first half of next year. Beyond that, who knows?