Interest Rate Update to 2 June 2010

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Rates up in late 2010

Mortgage Approvals Up In April

Mortgage approvals rose to their highest level in four months in April, according to new figures from the Bank of England. Mortgage approvals rose from 49,008 in March to 49,871 in April.

Although an improvement, it isn't exactly a sparkling result – the number of approvals is still lower than the average over the last six months and is around half the level seen at the peak of the housing boom in 2007.

OECD Believes Bank Rate Must Rise To 3.5%

The OECD has said that the UK base rate must start rising "no later than the last quarter of 2010" and that "the projected increase of core inflation" will justify an increase in the Bank Rate "to 3.5% by the end of 2011."

There was some good news, however. The OECD increased its projected figures for UK growth to 1.3% in 2010 and 2.5% in 2011, up from previous forecasts of 1.2% and 2.2% respectively.

Fixed Mortgage Rates Improve

Fixed mortgage rates are continuing to become more competitive. Several lenders have announced competitive new fixed rate deals or have lowered their existing fixed rates in the last week.

New figures from Moneysupermarket.com have shown that the number of five-year fixed-rate mortgage deals on the market has risen dramatically over the last three years, from 39 to more than 400.

Many homeowners are starting to consider longer fixed rates in an effort to avoid being caught out by interest rate increases over the next couple of years. However, five-year deals still have higher rates than shorter-term deals and a recent poll of financial advisers found that 41% expect fixed-rate mortgage deals of three years or less to be most popular over the next six months.