Interest Rate Update to 24 August 2011

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Rates will remain low for foreseeable future

Low Mortgage Rates Fail To Stimulate Sales

Despite mortgage rates having fallen to record lows over the last year, mortgage approvals continue to fall, suggesting that mortgage availability is only part of the problem.

Gross mortgage lending was 6% lower in July than it was in July 2010 and 1% lower than it was in June, according to figures released by the Council of Mortgage Lenders (CML).

Mortgage Fees Rise as Rates Fall

Falling mortgage rates over the last year may have distracted borrowers from rising mortgage fees. The average mortgage fee has risen by 17% (£151) to £1,030 over the last year, according to Moneyfacts.

Just 12% of mortgages charge no fee, while the highest fixed and percentage fees on the market are £3,800 and 2% respectively. Michelle Slade of Moneyfacts comments that borrowers must consider both fees and interest rates when comparing mortgages:

“Unfortunately too many borrowers still focus their initial attention on getting the best rate, without taking full consideration of the true cost of the deal. In many cases a low rate with a high fee can work out more expensive than opting for a slightly higher rate, but with a lower fee."

Mortgage Lenders Turn Cautious

Recent falls in mortgage rates may seem to suggest that lenders are beginning to lend more freely again. In fact, the opposite is true, according to a report by e.surv, the UK's largest provider of home valuation services.

Mortgage lenders are once again tightening lending criteria for buyers at the bottom end of the market. In July, the average first-time buyer deposit was 33% and mortgage approvals fell for homes priced below £750,000 – the vast majority.

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