Mortgage rates are on the rise

Mortgage rates took tumble over late spring and summer due the postponement of a base rate rise, however after hitting record low levels at the end of summer mortgage rates are starting to gradually rise.

Grim forecasts for the economy in November's mini-Budget have made a base rate rise even less likely. The MPC have voted to 'hold' this December and a base rate rise is looking a long way off.

The prospect of low rates for years to come exists, despite inflation remaining high. The committee has dismissed inflation concerns and is more focused on heading off a double-dip recession. However, fresh fears over banks' liquidity in the face of the eurozone crisis have bumped up money market funding costs and fed through to a slight rise in rates.

Barry Naisbitt, Chief Economist at Santander UK, said:

"While the MPC again voted for no change in Bank Rate today, the financial markets focus will really be on the European Central Bank with the markets expecting a further rate cut although this is not guaranteed".

Banks use savings deposits to fund mortgages as well as money market borrowing. Typically money market costs have tended to move in line with the Bank of England's base rate. Libor about 0.1 per cent above it and swap rates reflect what the market thinks interest rates will be over a set period of time. The credit crunch stopped this relationship temporarily, but things then returned almost back to normal.

Mortgage rates were driven down by the postponement of a base rate rise and swap rates, which influence fixed rate mortgages, falling. Lenders have also been keen to hit lending targets and the Council of Mortgage Lenders has reported that while funding remains tight there may be more money to go round this year than expected.