Interest Rate Update 9/12/09

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Rates likely to rise through 2010-12

More Mortgage Lenders Cut Rates

Nine more high street banks and building societies have announced cuts to some of their fixed mortgage rates this week. Cuts ranged from 0.1% to 1.3% and suggest that at present, the only lenders who are tightening their lending are the government-backed banks, as we reported last week. Mortgage rates on two-year fixed deals have been falling since October and are currently at their lowest rate since August.

Fixed rates look likely to regain some of the popularity they have lost over the last year as rate rises become more likely than rate cuts in the next 12 months.

Low Lending Volumes Mean You Should Act Fast

The best mortgages on the market are only available to small numbers of people. Lenders, especially building societies, only have limited funds available to lend. This means that fast action is necessary to get the best deals. One building society recently withdrew a highly competitive two-year fixed rate mortgage after just one week of availability – such was the demand for the deal.

Deposits Are Still King

Despite improvements in the housing market and increased lending by banks, the best deals remain available only to borrowers with substantial deposits.

Nearly two-thirds of the mortgage deals currently available specify a 25% deposit and the very best deals require a 40% or greater deposit – a sizeable chunk of cash. This is a marked contrast to before the credit crunch, when a 10% deposit would give you access to most of the best deals on the market.

The reality is that interest rates will remain high for people with small deposits – buyers with larger deposits will be able to benefit from lower mortgage rates and a greater choice of mortgage deals.