How the Bank of England base rate affects mortgage repayments

When you borrow money, the total amount you repay is determined by the interest rate. This is usually set by the bank, or the loan or credit card provider. When it comes to mortgages and savings, banks and building societies often use the Bank of England (BoE) base rate to calculate interest rates.

What is the base rate?

The base rate is a mechanism the BoE uses to help influence the UK economy and maintain a healthy balance between supply and demand. The Bank of England’s Monetary Policy Committee (MPC) meets eight times a year to discuss and set the base rate. The committee takes into consideration the inflation target and sets a rate that it judges will enable the target to be met.

Why is the base rate important to me?

The BoE base rate can directly or indirectly affect mortgages repayments unless you have a fixed rate mortgage — so it’s important to be aware of how your monthly payments can change if the base rate moves.

Impact on tracker mortgages

If you have a tracker mortgage, you are likely to be directly impacted by a change in the BoE base rate. The interest rate you pay is usually set at an agreed percentage above the base rate — so any change to the base rate would directly affect your monthly repayments. Put simply, if the base rate rises, so could your monthly repayments. Likewise, if rates fall, your payments could too.

Impact on standard variable rate mortgages

You could be paying your bank or building society’s standard variable rate. These rates do not track above the BoE base rate at a set percentage — instead, the rate is determined by the mortgage lender. Most lenders will use the base rate as a consideration when setting their standard variable rate, so you may find that if the base rate changes, so does their standard variable rate. However, this is not always the case, and lenders may choose not to change their rate following a base rate change, or to change it at another time — it is a variable rate that is entirely in their hands.

Use our interest rate change calculator

It’s useful to think about how a rise in your mortgage interest rate would affect your monthly repayments. We’ve created a handy calculator to help you work this out Interest rate change Calculator

Protecting yourself from interest rate changes

If you take out a mortgage with a fixed rate, you won’t be affected by changes in interest rates whilst you are in your fixed rate period. A fixed rate mortgage will ensure that your repayments will not increase despite interest rate increases — but equally, you would not benefit from lower repayments if interest rates were to go down. For advice on the best kind of mortgage for you, you should speak to your mortgage advisor/broker. Our team can also offer advice on the different types of mortgages offered by M&S Bank, you can call us on 0800 923 1536. Lines are open 8am-8pm Monday to Friday and 9am-1pm Saturday (excluding bank holidays). Calls are recorded.

Types of mortgage offered by M&S Bank

Read more articles

The material contained in this article is intended for information purposes only and not as advice.

You should obtain professional legal or other advice if you are unsure about the effect on you of any matter in this article.

Published: 26 January 2018

Your home may be repossessed if you do not keep up repayments on your mortgage