How are UK mortgage rates set?
Most home-owners are aware that mortgage rates are increasing but few know how rates are set by UK lenders.
A mortgage rate offered by a lender is determined by its funding costs, and as a large source of funding is through the Bank of England the base rate often determines what is charged.
The base rate most directly affects variable and tracker mortgage deals which are pegged a certain percentage above or below the base rate advised. Mortgage rates that are set in this manner therefore rise and fall in line with the Bank of England's movements.
Many mortgage holders currently want to know why lenders are increasing their rates when the base rate is clearly not moving.
The answer is money markets. In addition to borrowing from the Bank of England banks also borrow from each other. The rate the banks borrow at is determined by the risk of default. This risk can generally be tracked by looking at the Libor which is the average inter-bank lending rate.
As a result of the Eurozone crisis the Libor has increased, and these increased funding costs are now being passed on to home owners in the form of increased mortgage rates.
For an up to date comparison of lenders most competitive rates contact Deal Direct today.
