The Bank of England sets the official interest rate for the UK, known as the Bank Rate or Base Rate and it’s currently 5.25%.
The reason Base Rate is important is because it influences so many other interest rates in the economy, including the lending and savings rates offered by high street banks and building societies.
When the Bank Rate is low, borrowing money becomes cheaper, encouraging spending and investment.
But when the Bank Rate is high, borrowing becomes more expensive, which can help control inflation but may slow down economic growth.
Interest Rates
Interest rates are essentially the cost of borrowing money. When you borrow money, you agree to pay back the amount borrowed plus interest over a specified period. The interest rate determines how much extra you have to pay back on top of the borrowed amount.
The rate of interest, or interest rate, tells you how high the cost of borrowing is, or high the rewards are for saving.
Borrowers
So, if you’re a borrower, the interest rate is the amount you are charged for borrowing money, shown as a percentage of the total amount of the loan.
The higher the percentage, the more you have to pay back.
If you’re a saver, the savings rate tells you how much money will be paid into your account, as a percentage of your savings. The higher the savings rate, the more will be paid into your account for a given sized deposit.
Even a small change in interest rates can have a big impact which is why it’s important to keep an eye on whether they are going up or down.
Mortgage Rates
Mortgage rates in the UK are influenced by the Bank Rate but are not directly set by it. Instead, mortgage lenders generally use the Bank Rate as a benchmark to determine their own rates.
When the Bank Rate is lowered by the Bank of England, mortgage rates tend to decrease, making it cheaper for people to borrow money to buy homes.
But when the Bank Rate is increased, mortgage rates typically rise, making borrowing more expensive for homebuyers.
Other factors such as the lenders cost of funds, competition in the mortgage market and the general economic outlook will also influence mortgage rates with different types of mortgages such as fixed-rates and variable or tracker rates responding differently to changes in the Bank Rate.
Different Interest Rates
As the Bank of England itself says the sheer number of different interest rates available when you borrow or save can be confusing.
The interest rates high street banks set depend on more than just Bank Rate.
For loans, other factors are considered, including the risk of the loan not being paid back.
The greater the lender thinks that risk is, the higher the rate the bank will charge. It can also depend on how long you want to take out a loan or mortgage for.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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