Interest Rate Update 28/9/11

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Eurozone crisis means tracker rates might rise

Mortgage Choice Reaches 3-Year High

Prime residential borrowers can choose from 3,035 mortgages, according to new figures from Moneyfacts.co.uk. That is the highest number since February 2008 and represents a huge rebound from the 2009 low of 1,209.

However, there is less good news for borrowers with deposits of 10% or less. Just 281 mortgages are available for borrowers who require a 90% loan-to-value (LTV) deal. This is a big improvement on the 72 which were available in April 2009, but a big fall from the 647 mortgage deals 90% LTV borrowers could choose from in February 2008.

The story is similar for anyone seeking a 95% LTV mortgage – a 5% deposit deal. Just 44 mortgages are available in this bracket, down from 611 in February 2008.

According to Michelle Slade, spokesperson for Moneyfacts.co.uk, "Average mortgage rates have fallen to all-time lows, while at the same time deposit requirements are easing. First time buyers are finally being given some options as the number of deals available to borrowers with a 10% deposit or less continues to grow."

However, Slade also observes that, "affordability remains a key factor, so lenders continue to target remortgagers with sizable deposits who already have a proven payment history."

Eurozone Crisis Could Push Up UK Tracker Rates

The cost of lending between banks could rise as a result of the Eurozone crisis, driving up the cost of tracker mortgages.

One British bank has already increased its tracker rates this week, and there are concerns that others might follow, despite widespread expectations amongst homeowners that low rates are here to stay for the next year or two.

The problem is that Libor rates – the interest rates charged on lending between banks, which is used to fund tracker mortgages – are rising. This is a result of the pressure and fear felt by banks across Europe, which are exposed to government debt problems in countries such as Greece.