Lenders may be forced to link variable mortgage rates to the base rate.
Under new European rules, UK lenders may be required to link their standard variable mortgage rates to the Bank of England base rate.
A European mortgage directive proposal has been put forward which could in effect force UK mortgage lenders to align variable mortgage rates to a reference rate, such as that of the Bank of England base rate.
The European Monetary and Economic Affairs committee recently voted on various draft proposals including one on variable rates. The proposal states that any EU member must ensure any index rate used in the calculation of a borrowing rate, is made clear and verifiable by all parties connected to the mortgage agreement.
This proposal has been interpreted as meaning UK lenders can no longer raise their standard variable mortgage rate without justification, any increase would need to be linked to some form of external index rate.
The Council of Mortgage Lenders has commented says that it is still reviewing the directive in detail. Adding that it will be seeking clarification as to whether the proposal does indeed mean UK lenders will have to change the way standard variable rates are calculated.
Clarification will also be obtained as to whether the proposal relates to just those lenders currently calculating their standard variable mortgage rate based on an index rate, or whether the proposed directive will cover all lenders.
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