Why Do Interest Rates on Remortgages Change when the Bank of England MPC has Left their Interest Rate Unchanged

Homeowners can easily be confused when it comes to figuring out how interest rates are determined on remortgages.  This is especially so when the news is constantly covering the topic of changing interest rate possibilities by the Bank of England’s Monetary Policy Committee or MPC as it is often called.  The interest rate set by the MPC is called the standard base interest rate and is the base rate for which lenders use to set their own rates.  This is why the standard base interest rate is always lower than the offerings a homeowner will see with remortgage deals.

Lenders are in the business of making money through lending.  They therefore have to put interest rates on their products that are more than the standard base interest rate.  They usually have a percentage level that they add to the standard base interest rate to come up with their own interest rate offerings.  The standard base interest rate does come into play for a homeowner when they choose a tracker which will “track” what the MPC’s rate is at the time.  When the MPC raises or lowers the interest rate then the homeowner’s tracker remortgage interest rate will change as well.  If the homeowner has a fixed rate remortgage they will during the term of their remortgage deal not see any change.

Until a homeowner chooses a remortgage deal the standard based interest rate has less of an impact on a homeowner’s interest rate.  When a homeowner’s mortgage deal has ended they usually revert to the lender’s variable rate.  This rate is set by the lender and can move up and down at the will of the lender and is considered by experts as a risky interest rate for homeowners.  For a homeowner that has a set budget a lender’s variable rate can cause problems if the budget is not able to handle the increases that are likely to occur on a lender’s variable rate.  That is why it is important to consider a remortgage when a mortgage deal has ended or is about to end.

It is because lenders base the interest rates of their remortgage offers on the standard base interest rate that it is important to watch forecasts as to the changes being considered by the MPC.  If a homeowner has a mortgage deal that is close to ending and the interest rate is currently low but expected to rise then it could be a good move to go ahead and get a remortgage deal to secure a low interest rate before they change. 

Remortgage interest rate offers will not be as low as the standard base interest rate set by the MPC.  However the MPC rate does impact the remortgage offerings and can have a major impact on a homeowner if they have a tracker.  Lenders use the standard base interest rate as a beginning point for their offerings and as suggested by the name a tracker will “track” the MPC’s rate.  It is the lender’s variable rate that moves independently of the MPC’s rate and can rise and fall at will.  For a homeowner that is about to see their mortgage deal end they should consider a remortgage deal.

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