Chat with us, powered by LiveChat Interest Rate for UK - London Mortgage Partners

What will happen with Interest Rates? This is one of the most common questions we hear from our clients and perhaps the most difficult for us to answer with any certainty. Like many things, this is something that is easy to have an ‘opinion’ on but very difficult to predict. Take this month for example, much of the press muted that we should expect the Bank of England to announce a rate rise when they met on 4th November, but this did not happen as interest rates were held at 0.1%.

Below, we look deeper at Interest Rates and how they affect you……

What is the Bank of England base rate and how is it set?

The Bank of England’s monetary policy committee (MPC) sets and announces UK interest rate decisions eight times a year – roughly once every six weeks. In a series of meetings, the nine members of the MPC debate and vote on what monetary policy action to take.

At its last meeting on 4 November September, the MPC voted 7:2 to keep the base rate at 0.1%, a historical low.

The rate is important because it sets the level of interest that the Banks charge borrowers on financial products like mortgages.

What does the base rate mean for my mortgage?

Although not all mortgage products are linked to the BoE Base Rate, in the main when the base rate rises, Banks increase their mortgage rates.

If you are on a tracker or variable rate mortgage product then your rate will increase in line with the Bank of England’s changes.

If you are on a fixed mortgage product, you won’t be affected by higher interest rates until your deal expires.

If you are about to purchase a new home or remortgage, and you are concerned about future interest rate rises, taking a fixed rate product will give you peace of mind and protection against your monthly payments rising. You should discuss this with your mortgage adviser.

Will interest rates rise in 2021?

As a central bank the BoE’s job is to keep inflation in check and it can do this by altering interest rates. When rates are low, inflation tends to rise – and when rates are high, inflation tends to fall. If the BoE increases interest rates, inflation should fall. It aims for a healthy inflation rate of 2%.

With predictions that inflation will reach 5% next year, The BoE had been widely expected to increase the base rate at the meeting on the 4 November, but it did not. That said, the question now seems to be more, not if the Bank will raise rates, but when.

All eyes will now be on the next MPC meeting on Thursday 16 December – the last chance for Bank of England to raise interest rates this year.

What is the future for UK interest rates?

Unless you have a crystal ball, it is impossible to say although many experts believe that any rise in rates will be slow.

Financial Markets are pricing in a rate rise from 0.1 to 0.25 at the end of 2021, with a second rise to 0.5% in Spring 2022, hitting 1% by the end of 2022.

The BoE signalled in its quarterly Monetary Policy Report that it was likely to raise borrowing costs in the “coming months” although it is always worth contextualising that even accounting for these predicted rises, the cost of borrowing is still extremely low!

Interest Rate for UK

Interest Rate for UK.

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