Mortgage rates seen nearing floor

Published 13th May 2009

Lenders raised interest rates on two-year fixed rate mortgages in April, but the cost of tracker and variable rate deals fell slightly, Bank of England data showed on Tuesday.

The cost of taking out a home loan remained well above the central bank's official 0.5 percent interest rate, reflecting the still-high price of credit on wholesale markets.

The BoE said monthly interest rates on 2-year fixed rate mortgages with a loan-to-home value ratio of 75 percent rose to 4.01 percent in April from 3.98 percent in March.

Rates on tracker mortgages fell to 3.86 percent from 4.01 percent, two-year discounted rate mortgages with a 75 percent loan-to-value ratio fell to 3.6 percent from 3.63 percent and standard variable rate mortgages fell to 3.83 percent from 4.06 percent.

The central bank has been buying government and corporate bonds since March to help boost the supply of credit to Britain's economy. Last week it increased the size of its asset purchase programme to 125 billion pounds.

Analysts said the mixed data suggested mortgage rates in general could start heading higher soon, especially if markets begin to price in higher official interest rates amid growing signs of a moderation in the economic downturn.

"It looks like we've reached a floor in mortgage interest rates, I'm not sure how much further they can come down," said George Buckley at Deutsche Bank.

"Rates are probably going to stay at these levels and because people are expecting higher rates going forward, they will go up in future reflecting higher risk-free interest rates."

Source: ' reuters '

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