Welcome to our UK mortgage interest rate viewpoint pages, where we present information and opinion on interest rates and the typical economic factors affecting your mortgage payments.
Typically a mortgage lenders interest rate is typically anywhere from 0.5% to 1.5% above the Bank of England (BoE) Interest Rate. When you are quoted UK mortgage interest rates which refer to the 'base rate', it is the Lenders base rate that is quoted, not the BoE interest rate. The mortgage lender determines their base rate based on how much they have to pay to borrow money compared to how much gross profit margin they wish to add. In the current 'credit crunch' climate, this differential between lenders UK mortgage interest rates and BoE rates is increasing (as high as 2 %) for the simple fact that if lending banks can't borrow money from other banks, the only way to raise funds to is obtain more money from existing customers. This means that even when the BoE interest rate is reduced, lenders may not pass all this reduction on to borrowers, but will swiftly cut savings rates to savers. Some lenders have already included 'minimum interest rate' clauses in some of their products such as fixed rate mortgages,
The difference between the Lenders Base Rate and the rate at which lenders can borrow, is the revenue the lender generates out of which they will pay their business costs with any remainder being their profit margin. The odd quarter or half a percent profit margin doesn't sound very large but when you're lending £billions per year, it can generate a lot of extra money!
Occasionally (but unlikely in the current climate) a lender will offer UK mortgage interest rates which are less than the BoE Interest Rate and less than the rate at which they can borrow. Be assured that with most lenders this is only temporary to attract new customers! The lender is effectively giving up short term profit in order to gain new profitable long term customers.
So the lender might offer a great 2 or 3 year deal to attract new customers, but they expect to recover initial losses when the discount period is over. Lenders will often lock customers into a mortgage using expensive exit charges, or by setting mortgage interest rates higher than their standard rate, once the discount period is over. For this reason lenders will be unlikely to actively inform existing customers of their very best deals, because they want you around long enough on the higher interest rate for them to recoup initial losses and make profit.
Lenders also get customers to pay for the 'privilege' of receiving preferential UK mortgage interest rates by introducing an arrangement fee. Often when you take this into account over the discounted or fixed period, you may find that all the advantages of introductory interest rates have effectively been lost because of the up front arrangement fees.
It's up to you to find out what's going on in the mortgage market, but if this all seems too daunting, then speak to a mortgage adviser who can help cut through all the 'noise' to find you the best deal for your circumstances, and help you make sense of UK mortgage interest rates.
| Quick Enquiry Form |
|
| What it costs to use our services |
|
| Other Services |
|
General Insurance Find a Solicitor Secured Loans Unsecured Loans Commercial Loans Commercial Insurance Bridging Loans |