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ellenmyfanwy

Difference Between Base Rate And Mortgage Rate

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hi,

with base rate at 4.5% it seems that the average mortgage rate today offerred for the next 3 years is about 6%

the mortgage companies are upping the base rate by 0.33%

will this %age increase follow any base rate rise? cos if it does it is going to get expensive very quickly.

eg: if base rates reach 6% then the mortgage rate will 7.99% ..

does anyone know if this is how it works?

ta

ellen

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hi,

with base rate at 4.5% it seems that the average mortgage rate today offerred for the next 3 years is about 6%

the mortgage companies are upping the base rate by 0.33%

will this %age increase follow any base rate rise? cos if it does it is going to get expensive very quickly.

eg: if base rates reach 6% then the mortgage rate will 7.99% ..

does anyone know if this is how it works?

ta

ellen

Not 100% sure. What I do know is that 1 year ago, when the B of E base rate was 4.75%, therefore before the August 05 1/4% drop, fixed rate deals were available around 4.29%.

Today, the fixed rate deals are around 4.85% and steadily rising. With Japan set to end free money, Europe talking about 0.5% increases, the US potentially hiking to up near 6%, it is not the time to be taking on a large mortgage.

Base rates AND mortgage rates look to be heading up, up and away. The global house price (credit) boom is likely to turn into the global house price (credit) crash.

Imagine what will happen to sentiment, when most countries that were booming, start a prolonged period of nominal falls - crashing. Phil and Krusty may get lynched.

Edited by BubbleTurbo

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Its affected by a number of factors.

If the bank is borrowing the money in the UK then they need to lend it out well above the UK base rate to turn a profit (taking into account bad debt). If they borrow it elsewhere (maybe Japan?) at lower rates then they can afford to discount lower than the BoE rate. Even if they borrow in the UK to lend they can still offer short term discounts, although these are usually just to get you tied in to long term SVRs that are higher.

I think that the difference between the UK Base rate and average mortgage rate is going to mainly be driven by:

  • How much profits they expect
  • Levels of bad debt (money not recovered)

Given the exponential growth in bad debt, bankruptcies, IVAs and Reposessions I expect that the differential will only increase.

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It depends on the specific mortgage you have. For example, some track the base rate +0.5%, so with a base rate of 4.5% you pay 5%. If the base rate went up to 4.75% you'd pay 5.25%, etc. It's very much a case of making sure you fully understand how any specific mortgage product works as they're all different. Some may increase exponentially, others will not – There's no hard and fast rule, it's all down to how lenders construct their own products.

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thank you all,

it's a bit clearer.

i have noticed that even with low rate trackers the building societies are still showing average apr over the next 3 years at around 6 %, so i guess rates are definitely on the up.

ellen

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thank you all,

it's a bit clearer.

i have noticed that even with low rate trackers the building societies are still showing average apr over the next 3 years at around 6 %, so i guess rates are definitely on the up.

ellen

Indeed. It matters not what the B of E do as this is a global thing. Gordon made the common political mistake of believing his own BS.

When the B of E do hike, and hike they will. . . . . . . . It will affect sentiment as it is widely reported.

I think it will be very bad for sentiment though as the VI's and their media - e.g. David Smith and co have ramped aggressive rate cuts as a certainty after the August (misjudged) cut - and the sheepie thought we were going into another cutting cycle and have geared up accordingly. . . . . . their heros will proove to be lacking in credibility and give a lot of sheepie a few sleepless nights. :lol:

Edited by BubbleTurbo

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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