Understanding what’s going on with mortgage pricing

Understanding mortgage pricing at the moment is a bit of a head scratcher. We’ve asked our Mortgage Expert, Ryan Radford, to explain.

If you’re looking to buy a new home or remortgage your property, you may be alarmed by the ever-changing mortgage offers currently out there. Interest rates are rising rapidly – current fixed term mortgages are averaging at 5%; whereas just twelve months ago, it was common to find comparable mortgage products at just one or two percent interest.

There are many different reasons why and you may be surprised to learn it’s much more complex than just the Bank of England changing the base rate.

Here’s a quick explanation.

Rate changes are normal

Before the 2008 economic crash, rate changes were normal.

It was common for mortgage products to vary in interest rates. That’s partly why so many mortgage applicants were keen to benefit from the stability of a fixed-rate.

Unfortunately, because interest rates have remained artificially low for so many years, we have a generation of home owners who are simply unused to these market fluctuations. As experienced mortgage brokers, we’ve seen this type of mortgage market before, and we know how to work alongside it to find the best deals for you.

Mortgages can be impacted by funding sources

A lender may need to change their interest rates due to where they source their funding.

It is common for banks or building societies to fund mortgages through the money deposited by savers. As interest rates rise, banks need to pay savers more interest and as a result, this gets passed onto the mortgages.

If lenders are securing their funding from wholesale markets or government schemes, they will also have to pay more to access that money – which in turn, gets passed onto the mortgage applicant via higher interest charges.

Fixed-rate mortgages are impacted by Swap rates

While tracker mortgages will follow the Bank of England base rate, fixed-term deals are based upon ‘swap’ rates. Never heard of them?

Basically, mortgage lenders pay financial companies to buy funding for a predetermined amount of time. While the repayments from the mortgage holder will be a fixed rate, the repayments from the lender to the financial institution will be variable. Therefore, the lender needs to predict what could happen to interest rates throughout that predetermined time period to maintain their profit margin.

The current economic uncertainty is creating a volatile ‘swap’ market, which is why lenders are rapidly introducing (and then pulling) new products.

Added to the complication is that if a new product is launched which catches the attention of mortgage brokers, it can lead to a flurry of demand in applications. If the mortgage lender cannot cope with the influx of applications, they may withdraw the product to cope with the backlog.

We take the time to explain why mortgage fluctuations occur

Please do not panic about rising interest rates.

As we mentioned, this is entirely normal – it’s a return to the former mortgage market, and one we have worked in before.

Whether you are a first-time buyer, a buy-to-let investor or are looking to remortgage, we can find the right deal for your circumstances.

At The Mortgage Expert, our advisers will explain what causes interest rate changes and help you decide what type of mortgage product is best for you. Even if you are tied into a fixed-term deal, we can explore what options are available to you, and whether it’s possible to switch to an alternative product.

We have access to mortgage products across the whole market; many of which are not available on the high street.

This allows us to find the right product for you, with or without a poor credit history.

Call today on 01582 45 00 00 for more information or complete an enquiry form. We can check whether you are on the right deal for you.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE