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I am sharing this rather more technical feature today as it gives an explanation as to how actual lending interest rates are set. If you happen to believe that actual interest rates are the same as the Bank of England Base Rate then this article is for you.
In addition to the SWAP rates mentioned, banks and other lenders will add on top of this to cover things like admin & processing, bad debt and credit risk weighting, return on their own capital (as opposed to external debt) and of course profit. Hence, how we manage to get from a base rate of 0.5% to a 5-year SWAP rate of around 1.76 (2-year is 1.08%) and actual lending rates of around 3%-5% depending on deposit, term and other lending criteria.
Whichever way we look at it though, we are in one of the lowest interest rate runs for quite some time...and so we should probably look to fix long sometime soon I would suggest. This is assuming we have no intention to sell or remortgage anytime soon that is, which would result in higher penalties to break a fixed rate deal. The general election in my mind be the marker in the ground that separates the current low rate environment from a rising longer-term trend.
Source & credits: The Telegrapgh
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