Rates started to increase initially due to expectations that interest rates will be considerably higher on the future. This followed a rise in the swap rates- the rates which determine the cost of bank funding.

However, fixed rates have continued to increase, even though swap rates have stabilised. . This is because banks are less willing to lend. The shortage of bank funding has seen banks increase rates to control demand. Once one lender starts to increase, all other lenders follow suit, because no lender wants to be the one with the cheapest rate picking up all the business.

The most attractive rates are still reserved for those with large deposits or significant equity in their home. First time buyers continue to struggle to get a decent rate

Since fixed rates have now already priced in considerable rises to the base rate, it becomes a more difficult decision to determine whether a fixed rate or tracker rate is the best option. If rates do not rise as quickly as expected, the fixed rates may end up looking expensive compared to trackers.

Make sure you discuss your priorities and your budget with your mortgage adviser to determine the best option for your circumstances.

Fixed rate mortgages from a number of lenders have increased today following increases in funding costs. Rates are now expected to rise to deal with increasing inflation.

Interest rates are at an all time low but it is considered there is now only one way they can go. Once they start rising the rise could potentially be quite steep.

The Guardian highlights the following reasons why there are fears of inflation:

• Oil prices have more than doubled, hitting an eight-month high of $72 a barrel yesterday;
• Manufacturing output in the UK increased in April, prompting predictions that the recession is coming to an end;
• There are fears the Bank of England’s £125bn quantitative easing policy could feed through into rising prices if consumer demand recovers rapidly.

There are growing signs that the housing market is experiencing a spring bounce. Figures issued by the Council of Mortgage Lenders today showed a 16% jump in mortgage lending to people buying a home during April.

Once a few lenders start raising rates the others are quick to follow. In the current environment no lender wants to be the one out of step with all the competition getting more business than they can cope with.

If you haven’t yet fixed your rate now would be the time to start discussing it with your mortgage adviser, before rates go even higher,

As identified in the previous posting, the Consumer Price Index has risen to 3.2% for the 12 months to February 2009. In order to counter inflation it is possible interest rates will be increased. The result of increasing interest rates is that consumers then have less disposable cash and reduce their spending. Hence, inflation then stabalises.

Whether rates may start to rise again depends on whether the February figures are a one off or if they get repeated in subsequent months. If February figures are a sign of things to come then it is very likely that mortgage rates are now at their lowest and we may not see any further falls.

The FT has advised that brokers recommend fixing mortgage rates now rather than hoping for further rate cuts and to opt for longer-term rather than two-year deals. Five-year deals may be slightly more expensive but customers who fix for two years risk coming out of a deal at a time when interest rates are rising again.

Earlier this week we had 2 different sets of inflation figures announced. The Consumer Price Index (CPI) showed prices had risen by 3.2% in the 12 months to the end of February. This is an increase on the January 12 month figure of 3%.

However, the retail price index (RPI) showed that inflation had fallen to zero.

Where is there such a difference between the figures?

The RPI statistics includes housing costs and so has shown a “zero” figure due to the recent falls in interest rates. However, consumer goods are still rising, particularly food and petrol. This has therefore resulted in the increased rate to 3.2%. This is mainly due to the fall in sterling, the effect of which has been passed on to the consumers by way of higher prices.

A number of economists still expect CPI to fall in the coming months, since retailers are likely to have to reduce prices in light of reduced consumer spending.

The Bank of England cut the base rate yesterday to 0.5%, reaching yet another all time low. .

This is good news for those on a base rate tracker mortgage. But for those (particularly the elderly) who rely on their savings it has brought more hardship. Savers have seen the value of their income depleted over the past year. The government have been encouraged to introduce measures to help those who rely on savings for their income. Although the government have said the pans are to be introduced there is as yet no suggestion as to what form this help will take.

In an effort to stimulate demand the Bank of England is to now introduce “quantitative easing” i.e. creating new money. The initial new tranche of funds will be £75 billion, but the full amount could reach £150b.

It is hoped that the new funding being made available to banks and building societies will then encourage them to lend more in turn.

If you want an explanation of how quantitative easing will boost the economy there is a very good short video from the Financial Times explaining how it all works.

See http://tinyurl.com/cyebhb

At noon today the Bank of England will announce their decision on interest rates & it is widely expected base rates will fall to a new all time low. Base rate is currently 1% and it is expected to fall to 0.5%. Bad news for savers but yet more good news for anyone on a tracker mortgage.

For anyone thinking of getting a base rate tracker mortgage it may be too late for the benefit. With rates so low there’s really only one way rates can go in the short to medium term. Therefore anyone with a tracker mortgage may well see increases towards the end of the year.

A number of lenders are now introducing ways to protect a borrower from increasing rates. Some are putting a cap on their base rate tracker, whereby even if rates rise there is a limit above which the borrower will not have that increase passed on by way of higher monthly charges. The lender will suffer the cost. Other lenders give the option to transfer to a fixed rate during the tie in period of the base rate tracker without paying a penalty.

To help with your decision do take proper financial advice from an independent adviser.

For mortgage advice please see www.marywaringmortgageadvice.co.uk

Yesterday the Bank of England reduced the base rate to 1%. This marks the fifth interest rate cut since October, bringing base rate to a new all time low.

If you are on a tracker mortgage you will get the benefit. And a number of lenders have reduced their Standard Variable Rate, which is the rate you move onto when your initial rate finishes.

Anyone who is on a fixed rate by definition will not benefit from the recent reductions.

However, it’s the cut in rates is possibly unlikely to have much impact on whether fixed rates are likely to fall further. The majority of lenders are now concentrating on improving their margins rather than improving their market share.

Base rates have fallen from 5% in October 2008 to 1.5% now. Mortgage rates have also fallen- not by as much but still by a significant amount. This does mean that monthly repayments on your prospective home loan have been slashed dramatically in the past few months. Therefore if you are looking for a loan today you will be able to get that loan at a much lower rate than if you were looking in Autumn,

However, the downside is that due to the uncertainty in the market lenders are requiring much bigger deposits than was previously necessary.

The Financial Times has reported that 60% of all deals now require a deposit of at least 25%.  And 25% of all deals, those with the most attractive interest rates, now require a massive 40% down payment.

Therefore whether you can benefit from the fall in rates depends on the amount of deposit you have been able to save.

On 8th January the Bank of England cut base rates by 0.5%, bringing base rate down to 1.5%- the lowest figure in its 315 year history.
This time last year base rates were 5.5% and were considered to still be on the increase.
The bank has now reduced rates 4 times since it was at 5% at the beginning of October
However, cutting base rates is not enough on its own to get the economy moving. The biggest problem at the minute is liquidity- banks are just not lending to each other.

What does this mean for your mortgage?
If you’re on a tracker mortgage then you will benefit from the reduction.

However, if you’re on the lender’s standard variable rate (SVR) you need to wait and see whether banks will pass this on. C&G, HBOS and Nationwide have all said they would pass on the full cut to SVR. Halifax cut their rate by 0.25%. But we are still waiting to hear what other lenders plan to do.

Fixed rates by definition stay the same.

Nationwide has just introduced a 95% loan to value mortgage.This is newsworthy since it is the first lender to reintroduce high loan to values. The maximum which can be obtained from any other lender is 90%.
Although this can only be viewed as positive news, the downside is that the product is only available to existing borrowers who are moving home.But it is the first move by any lender in increasing the loan to value. Hopefully in due course others will follow suit and will extend the facility to first time buyers.