Myth-busting – Electrical Safety installations Act 202011:19 AM, 3rd August 2020
About 4 days ago 60
Headlines screaming out about rising mortgage interest rates are filling the news, so some facts and figures about the buy to let and home loans market should shine a light on what’s really happening.
Here is some information explaining some frequently asked questions about mortgage interest rates compiled with the help of the Council of Mortgage lenders, the trade body for all the UK’s leading bank and building society mortgage lenders:
Are mortgages more expensive now than last year?
The average new mortgage rate 3.55% in January 2011, and dropped to 3.4% by January this year.
On existing mortgages, average rates fell from around 3.5% to around 3.34%.
The average rate was more than 4%around 36 months ago, when Bank of England interest rates were pegged at the record low of 0.5%.
This is because more mortgages roll over from fixed rates to a lender’s standard variable rate (SVR), and more people choose to stay on SVR rather than remortgage.
Many borrowers cannot remortgage because of falling property values that have left them with insufficient equity to refinance.
Mortgage rates are historically low
The average mortgage rate over the past 30 years is 8.35%, with a high of around 15%.
Funding costs are higher for lenders
Banks borrow to lend on wholesale money markets, with interest rates charged at the London Inter Bank Offer Rate (LIBOR) – the rate they charge each other for borrowing.
Since early 2011, LIBOR rose from 0.78% to 1.11%, and the rate paid on deposits to savers rose by around 0.25% at the same time.
How do mortgage lenders set their interest rates?
The formula varies between lenders depending on how they raise funds for lending.
Most lend from a mix of deposits from savers and money borrowed from other banks. Generally, the lenders drawing cash from the largest pool of savers can afford to make their rates more competitive as the funds are cheaper.
If rates go up, how much extra will borrowers pay?
If rates increased from 3.5% to 4%, borrowing costs on a £100,000 repayment mortgage would go up around £30, from £505 to £535 a month.
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