Interest Rate Update 29/12/10

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Rates will start to rise in 2011

Homeowners Increase Mortgage Repayments

New figures from the Bank of England show that UK homeowners repaid £6.1bn on their mortgages in the third quarter of 2010 – up from £5.8bn in the second quarter and £5.2bn in the first quarter of the year.

The third quarter of 2010 was the 10th consecutive quarter in which home equity withdrawal has been negative – that is, when homeowners have been repaying their mortgages rather than borrowing against the value of their home.

All-time low mortgage interest rates have helped many homeowners to get ahead with their mortgage payments over the last couple of years, with many taking advantage of low variable rates to overpay on their mortgages.

MPC Votes 7-2 To Leave Rates Unchanged

The Bank of England's Monetary Policy Committee (MPC) voted 7-2 in favour of leaving the Bank Rate unchanged at 0.5% in December, according to the minutes of their latest meeting.

Only one member voted in favour of a rate rise to 0.75%.

14% Of Homeowners Can't Remortgage

Falling house prices cause homeowners' equity levels – the amount of value left in their home once mortgage debt has been subtracted – to fall. One consequence of this is that it becomes harder for homeowners with limited equity to remortgage onto the most competitive fixed-rate mortgage deals.

When you remortgage, the equity in your home is equivalent to your deposit when you first purchase a home. Credit rating agency Standard & Poor estimates that 14% of homeowners are now unable to remortgage because they have less than 10% equity in their homes.