Bank of England hold interest for Bank Base Rate at 0.5%. (now over 12 months at this rate) and decide to maintain level of quantitaive easing.

Lending markets are easing with higher loan to value mortgages and historically low rates.

We look at the true cost of mortgage products including not only lender fees, charges and incentives but also the interest rate the product reverts to after the incentive initial rate period.  All products are checked for their true APR% as well as flexibility and suitability for the client.

The Centre for Economics and Business Research (CEBR)  has revised its figure for house price rises in 2010 and is now predicting an annual gain of over 6%. Furthermore, the independent consultancy is expecting a 20% increase in the value of the average home by the end of 2013.The forecast is based on continued improvements in the availability of mortgage finance, a shortage of properties and the base rate remaining at 0.5% until well into 2011.

According to CEBR, unemployment will restrict house prices up to 2011, but the UK's shortage of housing stock will eventually take the average value of a home from around £167,000 today to £210,000 in 2013. CEBR spokesman, Benjamin Williamson, says: "The fact that house prices have already risen by almost 10% since the bottom of the cycle has surprised most commentators".

He adds: “However, with the rate of mortgage lending more than doubling over this period of time, a shortage of new properties on the market, low interest rates and unemployment not rising nearly as fast as expected, it is easy to see how prices have moved so quickly.” For full pdf copy of report Go to CEBER Report LinkLast week, Nationwide reported that the average price of a home rose by 1.2% in January, compared with a month earlier. (This week Halifax says 0.6% growth for January). The ninth consecutive monthly increase put the average value of a UK home at £163,481, showing a year-on-year gain of 8.6% (up from 5.9% in December 2009).However, the Nationwides’ chief economist pointed out that the rebound in the housing market has gone some way beyond the recovery in the overall economy. With pay inflation near zero or even negative, every increase in house prices worsens housing affordability he believes this will limit the potential for the current recovery in prices this year.

The Bank of England announced that UK interest rate to be kept at 0.5% today. This is the eleventh month in a row that the rate has been kept at this historically low level. In addition, the Bank of England’s Monetary Policy Committee (MPC) has decided to halt quantitative easing (QE) which was brought in to stimulate growth within the economy. Both of these announcements were expected by the majority of economists. The decision is despite recent figures showing UK inflation rose in December by 2.9% - its fastest annual pace for nine months - and above the Bank’s target of 2%

Halifax property price index shows January to be the seventh month in a row that house prices have raised. January growth being 0.6% despite the poor weather conditions for this month.

We still consider that interest rates will rise around the 3^rd quarter of this year. Lenders are now offering 5 year fixed rates for residential remortgages at between 5.49% and 6.89%

One lender is now offering a 5 year fixed rate mortgage at 75% loan to value for buy to let remortgages with no arrangement fee at 5.99%. Possibly attractive for those nervous about potential future rises in interest rates and would now prefer to “lock down and leave” for 5 years. (Rental cover required is at 1.25%)

Inflation figures for last December climbed at the steepest rate for 12 years with official figures showing the Consumer Price Index (CPI) jumped to 2.9% last month. Previous figures showed a 1.9% rise recorded in November. Economists were taken by surprise having forecast 2.4% for last December. The surge is attributed to a lack of discounting by retailers, general economic recovery and higher fuel prices - the cost of crude oil has doubled in the past year. The CPI is now comfortably above the Bank of England's 2% target for the first time since May 2009.

As VAT returned from its discounted rate of 15% to the full rate of 17.5% in January, statistics for this month are likely to see inflation break the 3% mark. That means the Governor of the Bank of England, Mervyn King, will have to write an open letter to the Chancellor, explaining why CPI is off target.

All of which means that the Bank of England is more likely to raise interest rates sooner rather than than later, in order to control inflation. Some economists had formerly been of the opinion that Bank Base Rate might remain at its current historic low of 0.5% until the end of this year and even into 2011. This is now less likely to happen.

The Bank of England has not been focusing on inflation while the economy has been in recession but it will become more of a concern. Economists now think rates will start to rise in the 2nd or 3rd quarter of this year.

These inflation figures are likely to bring to an end the 'rate complacency' we have seen among borrowers over the past year or so. The inflation data is a real shot across the bows for borrowers, many of whom have been quietly banking on a low interest rate environment in the short term. This is a risky game to play. More people than ever are on variable rate mortgages at present, either because they cannot re-mortgage or because they have decided not to when to given that discount on variable rates appear better than fixed rates available.

If rates rise to contain inflation then many borrowers will find themselves with significantly higher monthly payments. Borrowers who should be fixing are leaving it dangerously late. The prices of fixed rate mortgages have fallen due to an increase in competition although this trend is likely to reverse quite rapidly given today's figures."

Yorkshire Building Society became the latest lender to cut its rates yesterday. The reductions came despite the Bank of England keeping the Base Rate on hold last week at 0.5%, and despite swap rates, on which fixed rate mortgage pricing is partly based, rising slightly this month.

Chelsea, Coventry, Halifax, HSBC and Nationwide have all cut some fixed rates over this last week. Coventry is targeting low loan to value remortgages with very competitive fixed rates for three and five years for loans up to 50 per cent with free valuation and free legal fees

There are more competitively-priced mortgage deals appearing due to new mortgage lenders looking to come into the market. Potential new entrants include Virgin Money, which last week bought regional bank Church House Trust, whose banking licence could allow it to launch a mortgage range relatively quickly. Virgin Money is also still interested in buying the ‘good’ bank part of Northern Rock.  

Northern Rock has been split into two companies with Northern Rock PLC for new lending and savings and Northern Rock Asset Management PLC for existing mortgages. This effectively ring fences Northern Rock PLC from bad debts. 66% of Northern Rock repossessions are from accounts where 125% funding took place.

Lenders are less dependent on Swap Rates funding these days, and are getting more of their money from savings accounts and so enables lower fixed rates.

There is a modest improvement in wholesale funding as lenders appear to becoming more comfortable with the wider economy, most notably the bounce in house prices and the expectation that interest rates will remain low for some time - resulting in far less repossessions than initially expected.

The buy-to-let market has also seen increased competition with more products and cheaper rates announced over the last week from BM Solutions, Godiva, Whiteaway Laidlaw, Aldermore and The Mortgage Works.