What is the Bank of England base rate?
The base rate is the interest rate set by the Bank of England’s Monetary Policy Committee (MPC). It is the rate at which the Bank of England lends to commercial banks, and it serves as the benchmark for interest rates across the UK economy.
The MPC meets eight times a year to decide whether to raise, lower, or hold the base rate. Their decision is based on economic conditions, particularly inflation. When inflation is high, the MPC may raise the base rate to cool spending. When the economy is weak, they may cut it to encourage borrowing and investment.
How the base rate affects tracker mortgages
Tracker mortgage rates move in lockstep with the base rate. If the base rate rises by 0.25%, your tracker rate rises by exactly 0.25%. The same applies in reverse. This direct link means tracker borrowers feel the impact of every base rate decision immediately.
For example, on a £200,000 mortgage with 20 years remaining, a 0.25% rate increase adds roughly £25 to £30 per month to your repayments. A full 1% increase could add £100 to £120 per month. These figures vary depending on your exact balance and remaining term. Try our repayment calculator to see the impact on your specific mortgage.
How the base rate affects fixed rate and SVR mortgages
If you are on a fixed rate, base rate changes do not affect your current payments at all. Your rate is locked in until the fixed period ends. However, the base rate environment will influence what deals are available when you come to remortgage.
Standard variable rates are set by each lender and can be changed at any time. While SVRs tend to move broadly in line with the base rate, lenders are not obliged to pass on base rate cuts in full. Some lenders are quicker to raise their SVR than to lower it.
What to do when rates are rising
If you are on a tracker or SVR and rates are rising, consider whether switching to a fixed rate would give you more stability. Locking in a fixed rate before further increases can protect your budget. However, be aware that fixed rates may already reflect expected future base rate rises.
If you are already on a fixed rate, rising base rates do not affect you until your deal ends. Start looking at remortgage options three to six months before your fixed period expires to avoid falling onto an expensive SVR.
Get advice on base rate changes
Understanding how rate changes affect your mortgage can be complex. At Clearview Mortgage Solutions, our advisers stay on top of base rate developments and can explain what they mean for your specific situation.
Whether you are considering a tracker, thinking about switching from a variable to a fixed rate, or approaching the end of a fixed deal, we can help you make the right decision. Contact us for a free, no-obligation chat.