Home mortgage rates
When it comes to home mortgage rates there is a great deal for current home owners to cheer about. The UK is enjoying a period of low interest rates and climbing house prices, effectively helping home owners to pay less for more value in their home. Adding to the cheer are figures released by the investment bank, Morgan Stanley, which claim that we haven't had it this good in 300 years - real interest rates taking inflation into account running at around 2%. The last time this happened Queen Anne succeeded William III on the throne and Isaac Newton was knighted to become a 'sir'!
Why are home mortgage rates so competitive today?
Home mortgage rates are competitive due to a number of factors. First and foremost is the relationship between home mortgage rates and the Bank of England base rate. In 1997 the labour government gave independence to the Bank of England to govern the base rates. This they have done through the Monetary Policy Committee (MPC), who meet every month to discuss & consider evidence on current economic indicators.
The MPC's overriding concern as far as interest rates are concerned is the impact of different economic factors on the rate of inflation. The government is responsible for setting a target for the rate of inflation, and the MPC is charged with managing the interest rates to ensure that this target is hit. By controlling the rate of inflation the UK economy is stabilised, and the threat of wild rises in the base interest rate subsides. This factor alone gives mortgage companies the confidence to set low home mortgage rates for their products that are close to the base rate. In fact, some mortgage companies are offering long-term mortgage deals where the interest rates are only 0.5% or 1% above the base rate.
Adding further to the suppression of mortgage rates is the quantity and quality of competition for business in the mortgage market. More and more specialist lenders are now competing for mortgage customers, the latter of which are reducing in numbers. Mortgage approvals in fact fell to a six-year low in January 2005, making competition for customers even more intense than usual amongst mortgage lenders.
Coupled with the rise in importance of the Internet as an easily accessible medium through which home buyers can now search for their mortgage, it is easy to see a picture emerging of how mortgage rates have come to be at their most competitive for some time.