5 Key Factors that influence mortgage rates in the UK

Understanding factors that affect mortgage rates is crucial for prospective property owners in the UK. A mortgage rate is the interest your lender charges you as the cost of borrowing money to finance your property purchase. The borrowed money has to be paid back. This repayment can have a substantial impact on your monthly financial budgets and savings for the future.

In this blog post, we will explore five key factors that influence mortgage rates in the UK, and how you can use them to make the right decision for your mortgage.

  1. Bank of England’s Base Rate
  2. Economic conditions
  3. Your Credit Score
  4. Loan to Value Ratio
  5. Lender rates

1. Bank of England’s base rate

The Bank of England’s (BOE) base rate plays a vital role in determining mortgage rates in the UK.

The base rate is how much interest commercial banks have to pay the BOE to borrow money. When you take out a loan, this interest is reflected in your monthly payments as lenders transfer this as a cost to their customer’s mortgage rates. This means that the higher the bank rate goes the higher your interest rate will too.

How much of an impact the base rate will have on your mortgage rate depends on the type of your mortgage. If you have a variable mortgage, your mortgage rate will reflect the changes in the base rate. This means that if the base rate rises so will your monthly payment rate. The benefit of a variable rate mortgage is that if the base rate drops you will be paying a lower rate as well.

On the other hand, if you are on a fixed rate mortgage your monthly repayment rate will be a fixed amount for the number of years (term) of your mortgage. Fixed rates are not affected by fluctuations of the base rate. However, when your term comes to an end you will be put on to a SVR or standard variable rate unless you remortgage.

Standard variable mortgages are higher than fixed rates. Fixed rates affords you the stability that a variable rate cannot as you will not be affected by any marked rises in the base rate.

2. Economic conditions

As much as mortgage rates are influenced by the base rate, the base rate is also influenced by the economic conditions of the UK. These include inflation, unemployment rate and the GDP status.

During times of economic uncertainty, lenders may increase mortgage rates to mitigate potential losses. While in periods of economic stability and growth, mortgage rates may be more competitive.

3. Your credit score

Apart from external factors, you also have personal factors that contribute to your mortgage rate. One of which is your credit score.

Your credit score will determine to a lender whether you will be able to make your payments on time. The credit score can be derived from the history of your credit card payments and utility bills. If you have a credit score above 700 is considered as good by a lender.

4. Loan-to-value (LTV) ratio

The loan-to-value ratio (LTV) is a formula used to determine how much of a risk you are to the lender. This depends on how much your deposit is and how much you are borrowing. If you make a large deposit and therefore borrow a small percentage of the property value you are not risky to the lender.

For example if your property is valued at £150,000 and you are borrowing £100,000 then your LTV is 30%. The lower the LTV the more favourable your mortgage repayment rate will be.

5. Lender rates

Since the borrowing rate is set by your lender, their business goals and market competition will affect your mortgage rate as well. You can expect a lender to offer lower rates if they are looking to attract more customers or are trying to beat down the competition.

Most often lenders will have a target category they will try to attract such as first time home owners. If you choose a lender that focuses on your mortgage type, you’re likely to be offered a more attractive mortgage rate.

When choosing your lender you must always be aware of the offers they make and which type of mortgage will suit you better.

If you’re unsure as to which type of lender you should go with, speak to the experts at BVS Mortgages and Financial Services. They offer great rates that are sure to meet your mortgaging requirements.


Understanding the factors that affect mortgage rates in the UK is essential for anyone considering buying a property. The Bank of England base rate, economic conditions, loan-to-value ratio, credit score, and the lender you choose all influence the interest rates you’ll be offered.

By staying updated and monitoring these factors, you can make informed decisions to secure the most favourable mortgage rate possible.

Remember to research and compare multiple lenders to find the best mortgage terms that align with your financial goals and circumstances.


* Approved by The Openwork Partnership on 31 July 2023

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