Bank of England base rate guide
The Bank of England's base rate is 5.25%. Find out what the base rate is and how it affects your mortgage.
The current base rate is 5.25% as of October 2023
The base rate holding steady, but still high, for consecutive months suggests interest rates may have reached their peak.
What is the Bank of England base rate right now?
The Bank of England base rate is currently at a high of 5.25% as of October 2023.
The base rate remained at 5.25% since the last announcement during September.
The Bank of England has been gradually increasing the base rate to curb inflation after the coronavirus pandemic, with 14 consecutive rate rises.
It was reduced to a low of 0.1% on 19 March 2020 to help control the economic shock of the pandemic.
The Bank of England base rate explained
The Bank of England base rate is an interest rate. It’s also referred to as ‘bank rate’, ‘interest rate’ or ‘base rate’.
The base rate is the interest rate that banks and lenders pay when they borrow from the Bank of England.
It is the most important interest rate in the UK. It influences most interest rates, including savings accounts, credit cards, loans and mortgages.
Usually, mortgage rates go up or down quite soon after the base rate changes.
The Monetary Policy Committee (MPC) decides the base rate. The committee meets to discuss it every 6 weeks.
The MPC last met on 3 August 2023 and decided to increase the base rate from 5% to 5.25%.
The MPC changes the base rate to meet government targets to keep inflation low and stable.
Rising inflation in 2022 explains why the base rate has also been gradually increasing.
The base rate was cut to a record low of 0.5% following the financial crisis of 2008/9. It stayed at the same level for years before the MPC cut it to a new low of 0.25% in August 2016 after the Brexit vote.
It was 0.75% from August 2018 to March 2020 when it was cut to 0.25% because of coronavirus.
The base rate was then cut again to 0.1% on 19 March 2020 and raised to 0.25% on 16 December 2021. After this point, the base rate was increased 8 times in 2022.
On 21 May 2020, the Bank of England said that the base rate could drop lower than 0.1%, possibly to a negative interest rate.
The bank's governor, Andrew Bailey, said they're looking at other banks that have used negative interest rates to see how they could work in the UK.
A negative interest rate means that you do not pay any interest when you borrow money. Instead, the lender pays you interest.
If the Bank of England sets a negative base rate, it does not mean that there will be negative fixed-rate mortgages.
If you are on a tracker or discount rate mortgage, you could end up with smaller monthly repayments.
The next base rate meeting will be on 21 September 2023.
The Monetary Policy Committee (MPC) meets around every 6 weeks to discuss if the base rate should go up or down.
When will the base rate go down?
The base rate increased 14 consecutive times since the end of 2021 by the Bank of England in an attempt to balance out inflation. Since August 2023, it has remained steady - suggesting the anti-inflationary measures are working.
There are 9 members of the Monetary Policy Committee, which decides every 6 weeks if the bank rate should go up, down, or stay the same. Their voting record is public. So if you start to see more members voting for a rate increase, that could mean the base rate will increase soon.
One of the ways the Bank of England tries to control inflation is by increasing the cost of borrowing. If it increases the base rate, the interest rate on credit cards, loans and mortgages usually increases by a similar amount.
Interest rates had been at their lowest in the last few years but, following the pandemic, they have increased dramatically.
How the base rate affects mortgages
The Bank of England base rate impacts mortgage interest rates.
They're important for anyone who has a mortgage or wants to get one.
Usually, mortgage lenders change their mortgage rates quite soon after the base rate is changed.
If the bank rate goes up:
funding for lenders becomes more expensive
lenders pass that extra cost onto borrowers
borrowers usually pay more in interest on their mortgage every month
To avoid the possibility of higher interest rates you can choose a fixed rate mortgage.
If the bank rate goes down:
funding for lenders becomes cheaper
borrowers usually pay less in interest on their mortgage every month
With the Bank of England raising the base rate to 4.5% in May 2023 mortgage products directly linked to it, such as tracker and variable mortgage rates, will be impacted. Fixed-rate mortgages, however, are not linked to the Bank of England’s Base Rate, and will therefore not be impacted.
We understand that this latest rise, coupled with the release of the Bank of England’s mortgage approval statistics for December 2022, has caused further uncertainty in the mortgage market.
However, our view at Better.co.uk is that, historically, the Christmas period has been a reflection period for reviewing finances, and we have seen a strong response at the start of 2023 with consumer confidence coming back and lenders reducing fixed rates.
Despite the base rate increase, lenders are optimistic this will have little impact on the current fixed rates available. If anything, there will be further competition in the market with lenders competing on pricing. This alone should give the consumer more confidence that we're moving into a period of stability.
If you’re currently on a tracker rate and are concerned about how much your mortgage monthly repayments could increase, do not hesitate to get in touch with a mortgage broker at Better.co.uk for advice.
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