Interest Rate Update to 26 June 2009

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Interest rates will continue to rise

Mortgage Lenders Aren’t Competing Like They Used To

Back in the boom days of 2007, mortgage lenders were competing ruthlessly with each other to offer the best possible mortgage deals to new customers. The result was that mortgage deals were very competitively priced and borrowers could get some cracking deals.

That’s all changed. Mortgage lenders are more interested in quality than quantity now. They are also taking a far more cautious approach to lending and are putting up interest rates at the first sign of money market rates rising.

This week saw several major lenders raise the fixed rates again – and the process doesn’t look likely to stop anytime soon.

Interest Rates Still Low – But For How Long?

This week saw the Governor of the Bank of England and the Chancellor of the Exchequer trading verbal blows over how banks should be regulated and who should have the power to do it.

The Governor thinks that the Bank of England should have more powers and the freedom to use them against misbehaving financial institutions. The Chancellor, speaking to bankers, was more conciliatory. It’s a remarkable role reversal for a Labour Chancellor and a Bank of England Governor, and it could soon start to affect interest rates.

Here’s why. If the economy begins to recover early next year – as is expected by many people – then inflation might start to rise again. This will be a concern to the Bank’s Monetary Policy Committee, whose primary responsibility is to control inflation. The result could be that they raise interest rates – just before a general election is due.