Interest Rate Update 23/3/11

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Rates almost certain to rise in next 3 months

MPC Votes 6-3 To Hold Bank Rate At 0.5%

The Bank of England Monetary Policy Committee voted 6-3 in favour of leaving the Bank Rate on hold at 0.5% in March, according to the minutes of the committee meeting, which have just been published.

Three members of the committee favoured a rate rise, with two preferring a 0.25% increase and one supporting a 0.5% hike.

New inflation figures showing a further rise in inflation are likely to continue to increase the pressure on the MPC to increase rates – the next three months appear to be the most likely time for the first increase in the Bank Rate in more than two years.

Mortgage Rates Stay Low But Fees Rise

According to the Office for National Statistics (ONS), one of the factors that has contributed to the most recent rise in inflation is a rise in the cost of "miscellaneous goods and services", a category which includes mortgage arrangement fees.

Mortgage lenders are capitalising from borrowers' growing desire to secure fixed rate deals by keeping their interest rates low but gradually increasing their mortgage arrangement fees. Although mortgage arrangements fees are typically around £1,000, some are as high as £2,000 or more and some are levied on a percentage basis – perhaps 1.5% of the amount borrowed.

It is important for borrowers to understand the total cost of the mortgage – for some, it will be cheaper to take a higher interest rate and lower fee, others will find it cheaper to pay a higher fee and benefit from a lower rate. Many borrowers add mortgage arrangement fees onto their mortgage instead of paying them upfront – but this results in them paying 25 years' worth of interest on that fee.