The Bank of England Base Rate.

Interest rates

The Bank of England Base Rate is set once every month by the Monetary Policy Committee, every person on the committee will have a vote on what to do with the rates in the event that the voting does not produce a majority the Governor of the Bank of England will have the casting vote.

How does the Base rate affect my mortgage?

Mortgage lenders will consider the Bank of England's base rate when setting their interest rates , if you have a mortgage that is linked directly to the banks base rate then this will change when the bank changes its rates, these type of mortgages are often referred to as tracker mortgages, one of the older style of mortgages will be the standard variable the mortgage, this will be the variable rate offered by the lender it does not tract the bank of England's rate to the letter and if rates rise then your lenders standard variable rate will not always rise but in the majority of instances you will find that if the bank of England's rates goes up or down then so will your lenders standard variable rate.

The Bank of England's Base Rate also forms one of a plethora of other factors to determine the fixed rate mortgages available at any one time, Mortgage lenders will monitor the money markets, inflation reports, wages data, world wide fiscal data and many other 'very interesting' dinner party topics. Fixed Rate mortgages are understandable very popular at the moment with the Bank of England's Base Rate being so low, and when choosing your mortgage produce you would be best advised to explore all the fixed rates available, we would recommend that you speak to an independent mortgage adviser when considering a mortgage product.

Over the years the difference between the Bank of England's base rate and the rates offered by lenders has in my view widened, providing more revenue to the lenders, is this a sign of prudent management by the lenders or an opportunity to make money on this product range, they may be paying the price for lending in the past, or is it us the borrowers that are paying the price for this folly. Unfortunately needs must and the mortgage market is what it is, competition between lenders will reduce these margins and we have seen evidence of this.

The Future.

Predictions are just that but when you get the consensus of economic experts predicting the same thing then it does give more confidence about their predictions, at the moment the signs are that the Bank of England base rate will remain low, with most predictions pointing to at rise of 0.25% in the 2nd or 3rd Quarter of 2015, remaining below 2% at the end of 2018, but remember no one can predict the future and these are educated predictions, but for months the signs from some were that interest rates were due a cut to 0.25% which to date has not transpired, swap rates on the money markets do give a view to the future and whatever the swap rates are ant any one time will influence the rates provided on Fixed Rate Mortgages and saving rates, it must be said that over the past few years the predictions have not been to accurate! But swap rates will influence your Mortgage Company.

One piece of advice would not be to gamble with your Personal Finances, in relation to interest rates.

On the 8th of August the Bank of England announced that it would consider raising interest rates in the event that unemployment falls bellow 7% , which was originally predicted to be around 2015-2016,this has since been revised to 2014 as off January 2014 unemployment stands at 7.4%. This announcement also contained a number of caveats, but is a useful insight on the Banks view, but as the Bank has said if unemployment does reach the target it does not follow that interest rates will rise.

Since this announcement UK growth has strengthened and unemployment fallen, as long as inflation rates are kept in check we may well see a rise early 2015.

The European Central Bank has cut interest rates in the eurozone to 0.15% with inflation running at 0.5% and falling, it has fallen almost 1% in the four months to November 2013.
The impact on this should bring lower inflation to the UK, and a low inflation figure will hold back any rate rise.

As always things can change in an instant, but we feel rates will remain low for another two years.