Interest Rate Update to 3 August 2011

UK Interest Rate: 0.5%

UK Interest Rates Forecast: City expects no change until 2012

Fall In Borrowing Costs Helps Drive Low Mortgage Rates

UK gilt yields reached a record low this week, with the yield on 10 year gilts (Treasury bonds) falling from a high of 3.89% in February 2011 to a new low of 2.76%.

Whatever the political and economic implications of this news, it represents good news for mortgage borrowers. Mortgage rates are now reaching record low levels – one building society is currently offering a 3.39% five-year fixed rate deal, for example.

The average five-year fixed rate is now just 5.02%, according to Moneyfacts – the lowest since before the credit crunch.

However, Moneyfacts' figures show that many borrowers are not benefiting from the low rates, even if they are on variable rate mortgages. According to Moneyfacts, the average standard variable rate is still 4.8%. This means many homeowners who have been unable or unwilling to remortgage onto new fix deals are paying a high price for their loyalty to their current mortgage lender.

Fixed rate mortgages remain popular amongst remortgagers – figures from the Council of Mortgage Lenders show that 62% of remortgaging deals in May were fixed rate.

Mortgage Lending Down In June

Lending secured on dwellings – mortgage lending – fell by £0.1bn in June, according to the latest figures from the Bank of England.

However, the number of new mortgages for house purchases rose by more than 2,000 from 46,418 in May to 48,421 in June. Remortgaging approvals also grew, rising from 29,058 in May to 30,705 in June.