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Mortgage rates up 0.64% in year

Tuesday, 19 August 2008 12:00 AM

The cost of the best-buy mortgage on the UK market has increased by 0.64 per cent over the last year, according to new research from mform.co.uk.

This comes despite the Bank of England's monetary policy committee (MPC) cutting the base rate of interest from 5.75 per cent in August 2007 to five per cent today.

As a result, the average best buy mortgage deal now comes with a rate of 6.34 per cent interest, compared to 5.7 per cent in August 2007, finds the analysis of fixed and variable rates finds.

The change means hard-pressed homeowners will need to find an extra £60 a month - or £720 a year - to meet a £150,000 mortgage on a capital repayment basis.

"We are living through a period of inflating prices and mortgages are no exception," explained Francis Ghiloni, mform's marketing and business development director.

"The Bank of England can cut rates but as we have seen over the past year there is no guarantee this will translate into a lower true cost of mortgages at least in the short term."

Further cuts in the Bank's base rate of interest are unlikely, however, as inflation has continued to surge.

The latest Office for National Statistics (ONS) figures show the consumer price index (CPI) has now reached 4.4 per cent - well ahead of the government's two per cent target. While this remains the case, the Bank's hands are tied.

The traditionally popular two-year fixed-rate deal has seen the biggest price hike, according to mform, moving from just 5.51 per cent to 6.38 per cent - a rise of 0.87 per cent in 12 months.

Variable tracker rates, by contrast, have experienced the most modest change - moving up by just 0.41 per cent to 6.15 per cent.

The cost of five-year fixes has also increased at a below average rate. Among best buy deals the average mortgage has increased by just 0.52 per cent.

"With rates creeping steadily upwards the advice to borrowers looking for a new deal is clear. Look to minimise your exposure to rate rises by ranking your mortgage on the true cost taking into account repayments as well as all fees," concluded Mr Ghiloni.

Chris O'Toole

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