The Bank of England Base Rate Explained

When taking out a mortgage, one of the first questions you may have is ‘how much will my monthly repayments be?’

What is the Bank of England Base Rate?

Set by the Bank of England’s (BoE) Monetary Policy Committee every six to seven weeks, the base rate is a benchmark for the cost of borrowing money. Mortgage lenders (such as high street banks and building societies), use it as a guide to set the interest rates they charge back to mortgage borrowers.

Each time the committee meet, they can decide whether to increase the BoE Base Rate, lower the base rate, or keep it at its’ current level. Broadly speaking, when the BoE increase the base rate, it inevitably also increases the cost of borrowing. On the flip side, if the BoE lowers the base rate, it could decrease the cost of borrowing, potentially paving the way to more attractive, affordable mortgage deals.

What is the base rate now?

How does the Base Rate directly affect me and my mortgage?

New mortgage - For potential buyers looking to secure a mortgage for the first time, the mortgage interest rates on offer will be determined by the economy and in turn, the current base rate. If the base rate is high, then interest rates are likely to be more expensive. If the base rate is lower, then many lenders will probably lower their mortgage products too in order to remain competitive, therefore helping with more affordable monthly mortgage costs when you buy your first home.

Existing borrowers - For existing homeowners who already have a mortgage, the type of mortgage you are on will determine whether your monthly repayments are affected when the base rate changes:

• Fixed Rate - If you are on a fixed rate deal, your current payments will be unaffected by any base rate changes as your monthly payments are fixed. You won’t benefit from any decrease, but similarly you won’t pay more in the event of an increase. If your fixed rate is coming to an end, you may find it beneficial to look around for a better mortgage deal you could switch to. Please note that you may have to pay an early repayment charge if you change to a new product before the end of your current deal.
• Standard Variable Rate (SVR) - If the base rate lowers then you may benefit from lower monthly payments if your existing lender decides to pass on any savings by also lowering their current SVR. If the base rate increases however, then your existing lender could decide to increase their SVR, meaning your payments will go up. An important point to note is that your mortgage lender can choose to change their SVR at any time, without notice and independently of any base rate change.

  On this basis, if you are currently on an SVR it is always worth speaking to a mortgage consultant to see if there is potentially a cheaper fixed rate or tracker deal out there which may save you money. Whilst on an SVR, you are usually free to switch to another deal without incurring early repayment charges associated with a fixed rate mortgage for example.

• Tracker Rate - A tracker rate tracks the base rate so if the BoE decide to lower the base rate, you will immediately benefit from lower monthly repayments due to your mortgage tracking the drop in the base rate. This works both ways however – any increase in the base rate will mean you aren’t protected from immediate increases to your monthly mortgage repayments.

Another important thing to consider is when looking at your monthly repayments, low rates aren’t the only thing to look for when searching for the ‘cheapest deal’. You need to look at the overall cost of the mortgage product, factoring in additional fees, lender criteria and the length of time (mortgage term) you wish to borrow for. To discuss your options in more detail, a Countrywide Mortgage Consultant can compare thousands of deals from a panel of high street and specialist lenders, to find the best deal for you.

Use our handy calculator to see what your estimated monthly payments could be based on different interest rates:

Will changes to the base rate affect house prices?

It’s difficult to tell. The increase or decrease in house prices very much depends upon the supply and demand of property. To understand how the base rate may affect your property’s value, it’s best to get an up-to-date valuation.

Any fees payable will be explained in your initial no-obligation appointment, before you choose whether to use our Mortgage Services.

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