Interest Rate Update to 9 June 2010

UK Interest Rate: 0.5%

UK Interest Rates Forecast: The emergency budget on 22nd June could affect rates sooner than expected

Mortgages Cheapest Since Records Began – BoE

The Bank of England has said that mortgage prices are currently at their lowest level since records began in 1995. The only exception to this is 90% LTV mortgages – lenders are still charging higher rates on these products to penalise borrowers with small deposits.

Fixed-rate mortgage deals continue to be competitively priced and highly attractive – at the time of writing, it's possible to get a five-year fixed-rate deal with an interest rate of less than 4%. Deals such as these are only available to borrowers with healthy deposits and good credit ratings but do offer a good opportunity for borrowers to fix their mortgage repayments before rates start to rise.

Will The Emergency Budget Make Rates Rise?

The coalition government's emergency budget is due on June 22nd. As the Bank of England's Monetary Policy Committee sets rates independently of the government, the budget announcement won't directly include a rise in interest rates.

However, it's possible that some of the measures in the budget will contribute to a situation where the MPC decides that the Bank Rate does need to rise sooner rather than later.

The Bank's next decision on interest rates is due this week and is likely to be another 'no change' decision, despite the latest above-forecast inflation figures. Most experts expect the Bank Rate to remain at 0.5%. However, even organisations such as the British Chamber of Commerce, which opposes a rate rise, does expect rates to start rising later this year. The BCC's June Forecast expects the Bank Rate to rise to 1.0% by the end of 2010 and 2.5% by the end of 2011.