Bank Rate Up – Don’t Do It!
Today the Bank Rate went up to 5.00%
Bank Rate / Base Rate – What Does It Mean?
Most people on Isle of Wight are aware of the term “base rate” and “bank rate”, but not everyone is aware of what they actually mean. Yet, these terms have been used in the media to a significant extent in recent months, leaving a lot of people confused about why it has such a major impact on mortgage products. These terms, generally speaking are refering to the same thing. The team here at Prospect Mortgage are on hand to explain the meaning of these terms, and to help clarify how it could affect you and your mortgage.
The Bank Rate / Base Rate – Quick Overview
The Bank of England’s Base Rate is the rate of interest that is set by the central bank of the UK. It has a direct impact on the rate of interest that all high street banks are charged when they borrow money often referred to as Swap Rates. Subsequently, it also has an impact on the amount businesses and consumers pay when they take out a loan or receive when they deposit money into their savings account.
Often, the base rate will be determined by the country’s economy. The MPC (Monetary Policy Committee) of the Bank of England meets regularly to agree on the rate that will be set. They determine the base rate to help ensure that prices remain affordable, that companies stay in business, and that jobs can be retained nationwide.
Since the COVID pandemic led to many industries experiencing shortages in goods and materials and, in turn, this has led to companies raising their prices. Everyday items, therefore, increased in price and have continued to increase due to other world events. The term for this event is inflation.
The MPC is required to try to maintain the level of inflation. Up until recently their target was maintaining inflation at about 2%. Whenever the inflation rate goes above this level, the MPC may raise the base rate in an effort to slow down inflation since it provides more benefits in terms of saving money and discouraging consumers from spending so much, helping slowly to remedy issues with supply by reducing the demand. The Bank of England has now raised rates 13 times to try to kerb inflation, but it struggling to be effective as inflation sits at 8.7% as of today.
Mortgages And The Base Rate
Lenders use the base rate as their primary factor when charging customers for loans like mortgages. That means whenever the base rate rises, any repayments that are non-fixed will rise in line with it. However, there is some good news in that almost 75% of the population of the UK have a fixed-rate mortgage. This means that their repayments will stay the same until their mortgage’s current deal comes to an end. Planning and looking ahead is crucial so a person can prepare and organise their finances in expectation of an increased monthly payment.
Don’t Stick Your Head In The Sand: Plan And Seek Independent Advice
For over a decade, the UK has had a low rate of interest. This makes it tough to know for certain how increasing the base rate is going to impact people today. Some will feel it in the pocket straight away, whereas others might not feel it for a period of time. We see many people today have other regular commitments such as HP or Lease arrangements for cars, also, credit card debt is at its highest in 3 years. So, if the average mortgage is going to increase by around £250pm then this is likely to make meeting all of those commitments difficult for some.
If your current mortgage isn’t on a fixed rate, and is rather on a Tracker or on SVR, then it would be a good idea to seek advice from an independent mortgage adviser to see if you can improve your deal, whilst protecting yourself against any future rate rises yet to come. If your mortgage is on a Fixed Rate currently, look ahead – when does your fixed rate end? Rates are unlikely to come back down anytime soon. Whatever your mortgage situation – dont stick your head in the sand! Instead, consider getting some figures for future planning. Time well spent!
Here at Prospect Mortgage, we’re on hand to help you find the best possible mortgage deal to meet your requirements. We can give you the advice and guidance you need when it comes to assessing your current mortgage situation, in light of recent base rate increases.
Give us a shout on 01983 616666 or Book a Chat on our Appointment Booker Online – www.prospectmortgage.co.uk
