Factors that impact the mortgage rates in the UK

The major factor which impacts mortgage rates is the Bank of England base rate. Apart from that

• London Interbank Offered Rate (LIBOR) indicates the market price of money.
• The number of repossessions and unemployment rate can be taken as indicators of the level of risk of lending money, the higher the risk, the higher the rate.
• Competitiveness of the mortgage market – Lenders are in a competition to get your mortgage. Lenders eventually drop the rates, if other lenders are offering attractive rates.

• Your loan to value ratio (LTV) – this is the percentage proposition of the amount you want to borrow, to the property value. The bigger your deposit, the smaller your LTV, which in turn leads to a lower interest rate.  
• Your credit score – It is a rating based on your borrowing history, financial circumstances and other factors such as whether you have moved address frequently. This shows how reliable you are to lend to.

And, mortgage rates vary with different type of mortgages.

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Impact of inflation

What is inflation?

Inflation is the rate of change in the consumer price of goods and services. It can be measured in various ways. But the most common way is to use Consumer Prices Index (CPI) and the Retail Prices Index (RPI). It compares the prices of consumer goods in the current year with the preceding year.

 

Inflation & my mortgage?

The Bank of England takes into consideration inflation when establishing interest rates. When the inflation is likely to go up in the near future, they tend to increase the interest rates with the intension of subdue and vise versa. Hence inflation highly impacts mortgage rates. One way to get rid of this is to select a fixed rate rather than a tracker rate.

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Is there anything I can do?

The main shield against inflation is choosing a fixed rate mortgage plan. This works as an assurance from inflation changes for a period of time.  But the main problem is fixed rates are quite expensive. The fixed rates vary from lender to lender and with the type of mortgage. The wise action is to get the help of a specialist to guide you through different products.

 

 

Economic circumstances

A strong economy builds a higher demand for consumer goods & services including property. It is a sign of a growing economy when the GDP and employment rise. In a situation where the demand goes up, the mortgage rates also eventually tend to increase. That is because, although there are more people with higher buying power, the lenders have a finite amount of money. The Interest rates affect house prices, and as a result property values also tend to rise during such situations.

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Present situation with the property market

The changes in the property market mostly depend on the location. But as a rule of thumb, the principle of supply and demand affects the mortgage market regardless of whether it is in Scotland or Wales. When more houses are building or reselling, there can be more demand for mortgages. This leads to rates going up. In the same way, if there are more people renting than buying, this leads to negative interest rates. If  

If there are a lesser number of new builds and a higher number of renters than buyers, it is a sign to expect lower mortgage rates.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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