Interest Rate Update to 8 September 2010

UK Interest Rate: 0.5%

UK Interest Rates Forecast: No change this month

Bank Set To Leave Rate Unchanged

The Bank of England is likely to leave the base rate unchanged at 0.5% for a further month. That's the view of most economists, who think that MPC member Andrew Sentance will remain the sole voice on the committee calling for an increase in rates.

A poll of 60 economists by Reuters on 1st September found that none expected the Bank of England to increase rates before the end of 2010 – something that was considered a foregone conclusion a year ago. The poll also found that the most widely-expected outcome was that the first increase to the base rate would take place in the second quarter of 2011, when the base rate would rise to 0.75%.

Mortgage Rates Continue To Fall

Meanwhile in the mortgage markets, the news is more of the same. Lenders continue to trim their mortgage rates in a bid to attract new customers. Borrowers with good deposits can readily access tracker and variable rates as low as 2.5%, and there are deals with sub-3% interest rates available to people with deposits of just 20%.

Fixed or Tracker?

Opinions vary about whether now is a good time to move to a fixed-rate mortgage deal or whether homeowners should stay on a tracker or variable rate and benefit from current low rates – which could continue for some time.

However, anyone benefiting from a low variable rate should consider what might happen if rates rose – as they eventually will – as their mortgage payments could rise significantly overnight.