Current mortgage rates
Current economic forecasts for 2005 and 2006 suggest that mortgage rates are likely to enter a period of stability over the next 12-24 months. On a recent survey of 50 economists, 22 believed that the Bank of England will increase the current base interest rate at least once by mid-2005, before lowering and stabilising the base interest rate into 2006. As the base interest rate has a direct influence on current mortgage rates, it is widely forecast that current mortgage rates on some products may increase once in mid-2005 and then follow the base rate's stability pattern.
Economic factors governing current mortgage rates
Current mortgage rates are ultimately governed by the base interest rate. This is the lowest interest rate at which lenders are willing to lend money and is set by the Monetary Policy Committee (MPC) at the Bank of England. In 1997, the Labour Government gave independence to the Bank of England to set interest rates, and the committee meets every month to discuss economic factors with a view to their impact or potential impact upon inflation. Amongst the factors discussed is the strength of the current housing market and new mortgage applications, both of which can have a significant affect on inflation.
Inflation - the rate at which consumer prices increase in response to demand and/or availability of personal wealth - is carefully managed through government targets. The current inflation target is 2% by the end of 2006, and for the government it is important that this current target is met. It is also critical that inflation rises at a controlled level, as otherwise "boom and bust" scenarios in the economy rear their head, creating instability and the vast potential for financial hardship, especially as personal debt is running at record levels in the UK.
In the mortgage market itself, current mortgage products available to borrowers are numerous. There is a staggering array of mortgage rates to choose from, all of which reflect the current base rate and strength of confidence in the base rates stability. Some products offer mortgage rates at a discount that are at or below the base interest rate for a limited period, while others operate on fixed or variable rates at a given point above the current base interest rate.
As current mortgage rates are so close to the base interest rate in terms of APR, it is easy to see how even a quarter of a percent rise in the current base rate can mean a similar rise in mortgage rates. It is for this reason that in times when there is uncertainty in the housing market or in the economy in general, moving your mortgage to a fixed rates product, where low mortgage rates are locked in for several years, is a wise thing to do.