Most people in the UK dream of owning and living in their own homes. However, buying one is a bit tricky because most people rely on mortgages to make this dream come true. At the same time, the cost of acquiring a home loan depends on the prevailing mortgage interest rates UK. Here is some more information about factors that determine rates and how they have changed over the years:
Factors affecting mortgage rates
• Bank of England monetary policies
The Bank of England's monetary policies play a big role in determining home loan rates. This is because the BOE sets base rates used by financial institutions across the country to calculate their own interest on mortgages. With this in mind, you can generally expect the interest on mortgages to rise when the BOE increases its base rate and vice versa. Take note the BOE raises/lowers its rates to keep inflation in check-- usually to keep inflation low.
• Source of a financial institution's funds
Another factor that financial institutions consider when setting mortgage interest rates is their source of funds. According to the Building Societies Association (BSA), the majority of building societies in the UK get as much as 70% of their funds from savers and the rest from the money markets. The problem with this arrangement is Britons are saving less than they did several years ago. As a result, financial institutions have to turn to money markets where interest rates are relatively high. In turn, they pass this cost to mortgage borrowers.
• Credit worthiness of a borrower
In general, a mortgage calculator scotland borrower whose credit history is less than stellar cannot expect to get the best mortgage rates UK. The opposite is true for a borrower with an unblemished credit history.
Mortgage rates also depend on a lender's terms. For this reason, rates vary from lender to lender. In general, building societies and traditional banks offer competitive rates to win as many new clients as possible.
• Economic outlook
When the economic outlook is bullish, lenders can access funds easily and at lower interest rates. In turn, they offer competitive rates to mortgage borrowers. On the other hand, lenders tend to face difficulties raising funds when the economic outlook is bearish.
Mortgage rate changes over the years
Although many people believe mortgage rates are high, they have been falling steadily over the years according to data published by the Bank of England. Research carried out by the financial information firm Moneyfacts found that rates are at the lowest levels since 1989. In fact, borrowers had to contend with rates as high as 12.83% in 1989. Currently, some lenders offer three-year fixed rates as low as 2.29%. Initial rates are even lower ranging from 1.44% to 2.99% depending on lender, type of mortgage, and repayment period. Nevertheless, potential homebuyers are clamouring for a BOE interest rate cut. This is unlikely to happen any time soon because analysts do not expect the BOE to undertake a base rate cut this year. In spite of this, 60% of people polled by research firm YouGov say they do not expect big changes in their finances in the near future. This is regardless of interest rates rising or remaining at the same level.
In conclusion, mortgage rates United Kingdom have been falling over the years making it easy for many people to purchase properties. Nevertheless, rates vary from one lender to the next depending on factors such as the BOE monetary policies, economic outlook, credit worthiness of borrower, and source of a financial institution's funds.