BoE base rate is no longer an indicator of mortgage rates.

Due to the eurozone crisis the BoE base rate is no longer considered an accurate indicator of mortgage rates.

Interest rates are likely to remain at their current low for some time to come but the same cannot be said for mortgage rates.

With the eurozone crisis having taken a turn for the worse uncertainty is scaring banks into increasing rates and pulling back on lending.

A drop in official CPI inflation to 3% has pushed back BoE base rate rise expectations to 2016. However it is no longer the base rate that influences new mortgage rates, banks funding costs are now the most significant factor.

Various factors drive mortgage rates such as the price lenders pay for funding from the wholesale money market, the cost of funds from savers and the amount of capital banks now need to hold against their outstanding loans.

The BoE base rate may have remained at 0.5% but the cost of funding has not remained low.

UK banks and building societies now pay about 3% to attract savers and funding costs have increased significantly. Added to this the amount of capital that must be held to cover loans has also increased which has in turn raised funding costs.

Lenders are experiencing rising costs and so to maintain their profit margins they are opting to pass on these additional costs to home-owners. A lack of competition in the market means that mortgage rates are likely to remain at a higher level for the time being.

If market confidence returns rates could fall back slightly, but those looking for a deal are advised not to hang on waiting for rates to go down as this many not happen anytime soon.

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