How does the Bank of England base rate impact your mortgage?
The Bank of England base rate is the official interest rate set by the Bank of England’s Monetary Policy Committee. Banks and building societies use the base rate to calculate interest rates for some mortgage products.
The Bank of England base rate last changed on 2 August 2018 to 0.75%.
How does the Bank of England base rate affect me?
The type of mortgage you have will determine whether you could be affected by a change to the Bank of England base rate.
Follow-on Rate (FoR)
FoR is a variable rate that all mortgage deals taken on or after 23 January 2018 will automatically transfer to when the initial product period ends. The FoR tracks, and is directly linked to, the Bank of England base rate, so will always move in line with changes to the base rate. This means your interest rate and monthly payments will move up and down as base rate changes.
Standard Variable Rate (SVR)
SVR is the rate that all mortgage deals taken before 23 January 2018 automatically transfer to when the initial product period ends.
SVRs are managed rates by the banks/lenders and not directly linked to the Bank of England base rate, so changes to base rate may not always result in a change to the SVRs. Other factors can also influence the rates set.
SVRs are variable rates so payments may move up or down.
Tracker rate mortgage
Tracks the Bank of England base rate for a set period of time. Your monthly payment will go up or down depending on movements to the base rate, so you need to be sure that you would be able to afford the payments should interest rates increase.
Lifetime Tracker and Flexible Offset mortgages are guaranteed to track the Bank of England base rate for the life of the mortgage.
Fixed rate mortgage
You choose to fix the interest rate over a number of years, such as two, five or sometimes ten years. Your monthly payments will stay the same, meaning you’ll know exactly what you’ll pay each month over a set period of time.
You’re protected from increases to the Bank of England base rate during the product term. It also means that you won’t be able to take advantage of any potential decreases in the Bank of England base rate during the fixed rate product term.
Firco is an independent mortgage broker that has strong relationships with the key lenders in the UK mortgage market, including those private banks who do not have a high-street presence. We arrange bespoke mortgage solutions for our clients, providing a tailored one-to-one advisory service, delivered face-to-face or remotely, depending on what suits you.
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The above article is purely for information purposes and does not constitute advice.
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