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Mortgages -how do they work?

Last Updated 01/05/2024

A mortgage interest rate refers to the amount charged on the loan by the lender, in other words it is the cost of borrowing money. Changes In interest rates can massively affect the cost of your repayments

There are a number of factors that can affect the rate a lender may offer you, including the following:

Amount borrowed
Deposit amount
Type of mortgage
Lenders offers or deals

How does mortgage interest work?

Generally mortgage interest rates follow the bank of England’s base rate. For example if you had a tracker mortgage which is set at 1% above the base rate and the bank of England base rate is 1%, then your mortgage interest rate would be 2%. A tracker mortgage is variable rate as it can vary as and when the Bank of England base rate changes.
Banks will also offer a fixed rate mortgage which differs to a variable rate as your rate will be the same for a set amount of time e.g., 2 or 5 years.

What causes mortgage rates to change?

There are two main reasons interest rates change:

The bank of England changing the base rate – this can happen for a number of reasons, in 2023 the aim was to slow down inflation with interest rate rises. Higher interest rates slows down spending & when spending slows down generally price rises slow down (inflation).

Lender competition – this is affected by the housing market & economic climate at any given time.

We work with a local mortgage advisor, please get in touch for more details!