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What we have done here in the site is gone into
specifics of rates and how they work etc. This
information can be accessed via the menu to the left of
the page, but that said this page gives you some generic
information on how interest rates work, how they are
calculated and the various flavours that can be
available to borrowers..
All mortgages and loans are charged interest, this is
how the lenders make their money. The actual Interest
rate charged is the choice of the individual lender
though it is generally set by market conditions. Such
conditions are known as supply and demand which means
how many people want a mortgage and how many lenders
there are to fill that demand.
Please note the graph below is not accurate and is for
illustrative purposes only.
There is also one other factor that has a bearing on
interest rates and that is the Bank of England's base
rate. A lot of people are confused why the Bank of
England's base rate is not the same as their mortgage.
The media gives them the impression that they are one
and the same. This is not the case, with the exception
of the Tracker mortgage or base rate tracker see menu
left for further info. Though mortgage rates do follow
the bank of England's base rate changes they are not
tied into them in any way. As has been said in the
earlier paragraph mortgage rates are set more on the
basis of supply and demand. That said the Bank of
England Base rate does affect the mortgage lender as it
is this rate that more closely reflects the lenders
costs in relation
to the money they are lending which is why you will very
rarely find a mortgage available for less than the Bank
of England Base rate.
The differing types of interest rates available across
the industry from different lenders and within their
various myriad of products is due mainly to the supply
and demand competition issue. Lenders will offer all
kinds of rates and schemes to entice clients into their
products to enable them to make money. It is for this
reason that we have such a wide selection of mortgages
available in the market place today.