What Causes Mortgage Rates To Rise And Fall?

The types of homes that a local estate agent can recommend to you depend considerably on your buying power, and for the vast majority of people, that buying power is dependent on factors that are both in and out of your control.

Factors within your control, up to a point at least, include the money you have saved for your deposit, your income, your outgoings and how much you can reasonably pay per month for the home of your dreams.

However, given that almost everyone who buys a house does so via a mortgage, what they can afford is often based on the mortgage rate, which can vary based on a wide range of factors.

The biggest is the Bank of England’s Bank Rate, which is the interest it pays to banks that store money with them, and conversely affects how much those banks will charge to lend money to others, connected to inflation rates and the Bank’s own two per cent target.

As of May 2024, the Bank Rate is 5.25 per cent, and the average interest on fixed mortgages is slightly above this. Certain types of mortgage explicitly track the Bank Rate plus a certain percentage.

However, this is not the only factor, although it is also the biggest. 

Another factor is what other lenders do. Typically, when one lender raises or lowers their price, the rest follow suit, in order to either not be left behind or be too inundated by requests for loans that they cannot manage.

Lenders also tend to try to predict the wider prevailing market trends, so they will sometimes start lowering prices if there is a strong belief that major institutions such as the Bank of England are going to lower their own rates.

This is why, despite the Bank Rate remaining at the same rate for the entire year so far, mortgage rates have fluctuated and gradually fallen and risen.