Property and Real Estate

Borrowing

To buy property or real estate you could use cash if you have it, and many sellers would prefer this as it makes for a reasonably quick sale.

If a purchaser does not have all the cash available then some amout of borrowing will be required to complete the purchase. That could be the whole amount or a percentage of the purchase price. As the amounts are calculated in 10s of thousands of pounds and 100s of thousands, possibly millions, the lending is done in a special way where the amount you can borrow will largely depend on your ability to pay back the amount over a given period of time and the property or real estate is used as collateral for the loan.

The borrowing or lending mechanism is normally called a >mortgage< and the lender will normally give you a mortgage based on the value of the property as they see it, sometimes regardless of the purchase price, for this the lender will normally do their own >valuation<. Depending on the current market the lender will make available various mortgage packages to the borrower, it will also be dependant on their >attitude to risk<. for instance if house prices are going up then it is likely that the lender will be confident about lending a higher percentage of the purchase price. if house prices are falling the lender will be more restrictive about lending a percentage of the purchase price.

Dependent on the Bank Base Rate the lender will set an interest rate for the mortage. It will normally be higher than the BBR

More recently they have voted to reduce the interest rates to record low levels.
(2% at the end of 2008)

At time of writing(May 2009) it looks like the BBR is set to continue at the low rates for some time to come, certainly months if not years.

Here is the history of changes from the beginning of 2008.