Mortgage rate highest in eight years

09 July 2008

Figures show cost of UK mortgage is at eight-year high

Bank of England figures have shown that the price of a new UK two-year fixed-rate mortgages is at its highest level in over eight years.

The data has shown that the price of a two-year fixed-rate mortgage, for borrowers with a 25 per cent deposit, rose by 0.37 per cent, to 6.63 per cent, between May and June. Rates have not been this high since February 2000.

George Buckley, chief UK economist at Deutsche Bank, commented on the figures: “This is a very significant rise that will reduce demand both for new mortgage finance and remortgaging.

“There is bound to be a knock-on effect on house prices,” he added.

The figures have been announced as the Bank of England’s Monetary Policy Committee (MPC) began its monthly two-day meeting to discuss whether or not to change UK interest rates from their current level of 5 per cent.

As it stands, the general prediction is that the MPC will keep the rate at 5 per cent. However, there have also been suggestions that the MPC may increase interest rates because of inflationary pressures where inflation has soared to 3.3 per cent. Once inflation goes above 3%, the Governor of the Bank of England has to write to the Chancellor explaining why.