As the Eurozone crisis continues to roll on, analysts are warning that the continued low Bank of England base rate may not prevent the rates paid by home loan borrowers from creeping upwards. That’s made it all the more important to hunt down the best mortgage rate available.
What many people don’t realise is that the BoE base rate doesn’t directly govern mortgage rates (except on tracker deals). The base rate is actually the price banks pay to borrow cash overnight to deal with the fact that the money they take in deposits and the money they pay out in loans can fluctuate from day to day, often leaving temporary shortfalls. This rate is a major contributor to a bank’s costs and usually has a clear impact on what bank’s must charge on mortgages to remain profitable.
While the base rate has remained unchanged at a record low for nearly three years, other bank costs are continuing to vary, most noticeably the rate banks pay to borrow on the “wholesale” markets to get the cash they lend out on mortgages. There are now fears that the Euro crisis could mean nervous markets hike up these rates, with an effect so dramatic that it affects consumer mortgage deals.
That could mean a major change in the way customers need to approach getting the best mortgage rate. For the past couple of years, the fixed base rate has meant that — by historical standards — there hasn’t been that much variation in the offerings from different banks, meaning the price of choosing a bad deal has been relatively bearable.
Now though, the mortgage market is already starting to show variations: while some lenders are sticking to their guns, others are putting rates up by 0.2% or even 0.5%. With the average house price now at just over £240,000, that would mean an additional £100 a month in interest charges. In other words, the benefits of choosing the best mortgage rate could become far greater.