Bank of England Base Rate

Ever since the late 1600's, the UK financial system has been supported and controlled by what is referred to as base rate.  The base rate is a figure which defines the lending rate the Bank of England uses for overnight lending to other UK banks.  The base rate has great influence over the economy of the UK due to its function.  Not only does it provide the structure to the economy, but also is the main component used to control inflation.  The base rate figure is determined and maintained by a group within the Bank of England known as the MPC, or Monetary Policy Committee.  When obtaining an original mortgage or a remortgage loan product from a lender, the interest rate associated with the loan is directly affected by the base rate.  Banks and brokers use the base rate in their formulation of their advertised loan interest rate.

When a mortgage loan or a remortgage loan product is sought out, an interest rate is always connected to it.  The interest rate associated with a loan product from a lender comes from a series of figures compiled into one.  The interest rate starts being formed with the base rate.  From there, other small percentages, or points, are added to ultimately end up with the loan interest rate.  The other small percentages added to the base rate include a bank percentage which has to be added for the lender to take on the risk of offering the loan.  This can be thought of as the price of doing business with that lender based on your risk factor and the amount of administration which will be connected with the loan.  Even though the base rate is where the interest rate starts being compiled, it has tremendous impact due to its high profile position in the transaction of the lender borrowing from the Bank of England.

The base rate has had an overall range through the years of 0.5% to 17%.  When the base rate sits at a level closer to 0.5%, many homeowners and home seekers take advantage of the low rate and purchase property or remortgage.  The amount of money which can be saved over time when the rate is low is sizeable.  Not surprising, the most popular types of loan products purchased when the rate is low are fixed rate loans.  Many people get the low rate locked in and then don’t worry about the loan for years.  The same is true for those seeking a remortgage.  Many times, those with a house and a variable loan will convert to a fixed rate type loan and cruise with that loan for years.

The base rate figure is a noteworthy figure to track on a daily basis.  It will not only keep you abreast of the best time to purchase property or remortgage, but also let you know when inflation is getting out of control.  The Bank of England uses the base rate to maintain the inflation rate for the UK close to the bank’s target level of 2%.