Third of homeowners unaware of how interest rates are set

Over a third (37 per cent) of homeowners are “not familiar” with how interest rates are determined, research from Barratt Homes has found.

The research, which surveyed 500 UK homeowners, found this knowledge gap was particularly prevalent among younger people.

It reported half of those aged between 21 and 30 had no knowledge at all of how rates are set, thereby making this the age group with the greatest knowledge gap.

Additionally, when asked about different mortgage types, 16 per cent could not explain the difference between a fixed-rate and adjustable-rate mortgage.

To address this ignorance, Barratt offered some insight into the house buying process, such as explaining how mortgage rates are set and what is considered a “good” interest rate.

It explained that a “good” interest rate for a mortgage depends on several factors, including current market conditions, an individual’s credit score, the type of mortgage they are considering, and the length of the loan term.

Generally, the lower the interest rate, the less you’ll pay over the life of the loan.

TNHG managing director, Terry Higgins, said: “In an ideal scenario, a good mortgage rate is one that’s lower than the current market average.

“However, what constitutes a ‘good’ rate is different for everyone. It largely depends on your individual circumstances, like your credit score, the size of your deposit, and how long you’re planning to stay in the property.”

Finally, Barratt advised actions that savers could take to secure a good interest rate on their mortgage.

This included improving their credit score, saving for a larger deposit, shopping around and comparing offers, considering the type of mortgage, timing the application wisely, and getting pre-approved.

tom.dunstan@ft.com

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