Small rise in fixed rates over two years

According to data from the Bank of England there was a marginal rise in interest rates on two year fixed rate mortgages last month.

It is thought that the slight rise could be the result of continued turmoil in the banking and financial markets in the UK, which has resulted from the widespread credit crunch that was sparked in the sub-prime mortgage sector in the United States. October saw the cost of a two year fixed rate mortgage for 95% of the property's value rise to 6.37%. The previous month it was 6.32%.

However, experts have pointed out that although the rates have gone up slightly since September, they are still a long way off from the August rate, which hit 6.58% in the wake of the credit crunch, which swept across the UK at that time.

One economist stated: "This is a mixed report but suggests rates are sticky on the downside." The report showed that standard variable rates had remained unchanged and also that there had been a small fall in the cost of ten year fixed rate deals.

Widespread interest rate falls have been predicted for next year, with many analysts and economists predicting that there will be two or three interest rate cuts during the course of the year, which will bring the base rate down to 5% or under. However, even at 5% the interest rate would still be 0.5% higher than in august 2006, before a series of five 0.25% rises took the rate from 4.5% to 5.75%, which it has remained at since July of this year.

Those looking to take out a fixed rate mortgage are urged to ensure that they shop around and compare different deals on the market, as the interest rates can vary from one lender to another. Although many lenders are now offering longer fixed rate deals following a call from the government, two and three year fixed rates seem to remain the most popular.

Tom Smith
21st November 2007

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