Understanding rates
A plain English guide to what the base rate is, how it’s set, and how it affects your mortgage.
The Bank of England base rate (sometimes called Bank Rate) is the interest rate at which the Bank of England lends money to commercial banks overnight. It’s the single most important interest rate in the UK economy, because it directly and indirectly influences the cost of borrowing across the entire financial system, from current account overdrafts to mortgage rates.
The base rate is set by the Monetary Policy Committee (MPC), a nine member body at the Bank of England. The MPC meets approximately eight times per year to decide whether to raise, lower, or hold the base rate. Its primary mandate is to keep inflation close to the government’s 2% target.
When inflation is rising too fast, the MPC typically raises the base rate to make borrowing more expensive and cool spending. When the economy is sluggish or inflation is below target, it may cut the rate to stimulate borrowing and investment.
The rate shown reflects the most recent MPC decision. Rates can change at any MPC meeting. We track rate movements closely and advise clients on how any change is likely to affect their mortgage.
The base rate affects different mortgage types in different ways:
Move directly with the base rate, at a set margin above it. If the base rate rises by 0.25%, your tracker rate rises by 0.25% and your monthly payment increases immediately.
Not directly linked to the base rate. Fixed rates are primarily driven by swap rates (see our swap rates guide). However, base rate changes influence market expectations and can move fixed rates over time.
Set by each lender independently, but most follow base rate movements, usually within a few weeks of a change. SVRs are typically the most expensive option and are what you’revert to when a deal expires.
If you’re currently on an SVR or tracker, a base rate cut could reduce your payments. If you’re on a fixed rate, the impact is less direct but still matters for your next deal.
Understanding where rates have been helps put today’s rate in perspective:
Whether you should fix your mortgage, switch to a tracker, or stay on your current deal depends on your individual circumstances, your view on rate direction, and what products are currently available in the market.
We monitor rate movements and market conditions daily, and we advise clients on timing decisions as part of our service, at no additional cost.
Book a free mortgage review callBook your free call with one of our advisors and we’ll explain exactly how rate movements affect your situation.
Book your free callYou may have to pay an early repayment charge to your existing lender if you remortgage.
Your property may be repossessed if you do not keep up repayments on your mortgage.