Why Are Mortgage Rates Lowest Ever

Why Are Mortgage Rates Lowest Ever?

Joint figures produced by the Bank of England and the Financial Conduct Authority (FCA) show that mortgage lending interest rate have fallen to a record low.

• Average variable rate mortgages are now at 2.5% per annum
• Average fixed rate mortgages are now at 2.91% per annum

This means the cost of borrowing has never been so low in the "modern" world of mortgages and property ownership.

Why are mortgage rates low?

The Bank of England central borrowing rate, the base rate, has been at a record low of 0.5% per annum for seven years.  This rate is technically the benchmark rate that banks and building societies can borrow money from the Bank of England.

Banks and building societies then lend money to us as consumers at higher rates and this is technically their profit margin.

The problem today is that the mortgage market review (MMR) started in April 2014.  This is where both mortgage lenders and mortgage brokers are now required to check that you can afford your mortgage, after daily living expenses, not just at today's interest rates but also stress testing to ensure that you can afford your mortgage payments if interest rates rise and the cost of living increases.  This saw a dramatic fall in mortgage approvals despite the fact that property prices have been increasing.

We believe many banks and building societies are now cash rich having complied with European wide solvency tests to prevent a further credit crunch with banking collapses and as such they have reduced their profit margin i.e.  lowered the risk rate premium in view of stricter lending meaning that they can afford to offer consumers today very attractive mortgage terms.

Given that interest rates are set to increase we suggest that if you have an index tracker mortgage or are on a standard variable rate you may wish to consider locking in two extremely attractive fixed rates and discount rates for the next couple of years.

Contact us for a free mortgage search and we will give you an idea of the types of mortgage deals that are available for you today.