Updated: Apr 12
You have more than likely been hearing the term ‘Base Rate’ on the news over the last few months, but what does it mean? Why does one rate have such an impact on so many mortgage products nationwide and why is the base rate continuing to rise?
In this blog we will be diving closer into why this affects you and what makes the base rate so important.
First of all, who sets the base rate? The Bank of England base rate is the interest rate set by the UK’s central bank, meaning that it is the interest rate that high street banks and all other lenders are charged to borrow money. This has a direct impact on how much consumers and businesses pay for taking out loans or receive for depositing cash into savings accounts.
The base rate is often determined by the state of the economy. Better the economy, the lower the base rate. The Bank of England’s Monetary Policy Committee (MPC) meets on a regular basis to agree on what rate to set roughly every 6 weeks. The MPC decide on the base rate in order to help maintain affordable prices, keep companies afloat and maintain a good level of job retention.
Following the pandemic, many industries have experienced shortages in materials and goods. This has caused businesses to raise their prices – meaning everyday items have increased. The term used to describe this is Inflation – and it’s the MPC’s job is to try and keep inflation at around 2%.
However, at this moment in time the current rate of inflation is just over 9% with the chance that this could increase again in November 2022. The base rate has been risen in a bid to slow inflation as it offers more benefits when it comes to saving money and therefore discourages consumers to spend as much.
How does it impact you?
The base rate is the main factor behind what high street lenders charge their customers for most loans such as credit cards and mortgages, so you can expect any non-fixed repayments to rise with the base rate.
After more than a decade of low interest rates, it’s hard to say exactly how an increased base rate will impact people – especially given all the uncertainty surrounding the war in Ukraine and the energy crisis. The rise in the base rate is to try and combat the increased supply issue of oil given the sanctions against Russia as well as an attempt to ease the cost-of-living crisis we are already facing. As we keep seeing on the news that the base is likely to increase again, we advise that you assess your mortgage situation soon – before it potentially rises further.
If you’d like to discuss the options available to you, contact us today!
20th October 2022