It is not just interest rates set by the Bank of England that affect mortgage repayments. Swap rates and LIBOR rates also affect mortgage borrowers.
Swap rates are the borrowing rates between financial institutions. Swap rates form the basis of the LIBOR rate.
If swap rates are higher than usual, the cost of mortgage repayments goes up. For instance, at the current time (although this is subject to change) swap rates are higher than usual, meaning the price at which lenders buy their funds within the money market is also higher. In response, banks, building societies and mortgage lenders have to increase the cost of repayments.
The cost of fixed-rate mortgages is particularly sensitive for lenders. If they fix a mortgage loan at a certain level of repayment, and swap rates remain high or climb throughout the period, they face a greater chance of losing money.
Not always. Many borrowers will attempt to ride out high in swap rates and not adjust the cost of their loans. In an increasingly competitive mortgage market, it is in the best interest of mortgage lenders to keep their products as cheap as possible. Lenders make up their money by cross-selling, or from borrowers who let their fixed-rate deals expire and revert to standard variable rate. .
Financial services experts are currently advising consumers hoping to fix their repayments to strike a deal as soon as possible. However, the market is subject to change, and this course of action may swiftly become less appropriate.
To keep up to date with changes to the interest rate, the LIBOR rate and swap rates, sign up for our monthly newsletter and mortgage alert mailshots on the right hand side of this page.