Key points

  • The current base rate is 1.75% as of 4 August 2022

  • The base rate looks likely to reach 3% by the end of 2022¹

  • As the base rate goes up, so do mortgage rates

What is the Bank of England base rate right now?

The Bank of England base rate is currently 1.75%.

The base rate was increased from 1.25% to 1.75% on 4 August 2022.

The base rate was previously reduced to 0.1% on 19 March 2020 to help control the economic shock of the coronavirus pandemic.

The bank reduced the base rate from 0.75% to 0.25% 1 week earlier on 11 March 2020.

But, in 2022 the base rate has seen a gradual incline, with the expectation that it could reach 3% by the end of the year.

The Bank of England base rate explained

The Bank of England base rate is an interest rate. It’s also referred to as ‘bank rate’, ‘interest rate’ or ‘base rate’.

The base rate is the interest rate that banks and lenders pay when they borrow from the Bank of England.

It is the most important interest rate in the UK. It influences most interest rates, including savings accounts, credit cards, loans and mortgages.

Usually mortgage rates go up or down quite soon after the base rate changes.

The Monetary Policy Committee (MPC) decides the base rate. The committee meets to discuss it every 6 weeks.

The MPC last met on 4 August and decided to increase the base rate from 1.25% to 1.75%.

The MPC changes the base rate to meet government targets to keep inflation low and stable.

Inflation has been on the rise in 2022. That is why the base rate has also been gradually increasing.

The rate was cut to a record low of 0.5% following the financial crisis of 2008/9.

It stayed at the same level for years before the MPC cut it to a new low of 0.25% in August 2016 after the Brexit vote.

It was 0.75% from August 2018 to March 2020 when it was cut to 0.25% because of coronavirus.

The base rate was then cut again to 0.1% on 19 March 2020, raised to 0.25% on 16 December 2021, and raised to 0.50% on 3 February 2022.

On 21 May 2020, the Bank of England said that the base rate could drop lower than 0.1%, possibly to a negative interest rate.

The bank's governor, Andrew Bailey, said they're looking at other banks that have used negative interest rates to see how they could work in the UK.

A negative interest rate means that you do not pay any interest when you borrow money. Instead, the lender pays you interest.

If the Bank of England sets a negative base rate, it does not mean that there will be negative fixed rate mortgages.

If you are on a tracker or discount rate mortgage, you could end up with smaller monthly repayments.

The next meetings are on 15 September 2022 and 3 November 2022 and 15 December 2022.

The Monetary Policy Committee (MPC) meets around every 6 weeks to discuss if the base rate should go up or down.

When will the base rate go up?

Experts are suggesting that the base rate could increase to as much as 3% by the end of the year.

No one knows exactly when the Bank of England base rate will go up.

Sometimes there are "signs" that the base rate could go up in the future.

For example: there are 9 members of the Monetary Policy Committee, which decides every 6 weeks if the bank rate should go up, down or stay the same. Their voting record is public. So if you start to see more members voting for a rate increase, that could mean the base rate will increase soon.

Sometimes the governor of the Bank of England, Andrew Bailey, tells the newspapers that the base rate may need to increase to keep inflation down.

One of the ways the Bank of England tries to control inflation is by increasing the cost of borrowing. If it increases the base rate, the interest rate on credit cards, loans and mortgages usually increases by a similar amount.

The most recent guidance from the Bank of England is that interest rates will likely increase in the coming months to try and keep inflation down.

Interest rates have been at their lowest in the last few years, but they are starting to increase. If you you're concerned about mortgage rates increasing in the next year, then it could be a good idea to consider remortgaging to lock in a fixed rate for 2, 5 or even 10 years.

Bank of England base rate history

Here's how the Bank of England base rate has changed since 2000. As you can see, historically the base rate has been much higher than it is today.

How the base rate affects mortgages

The Bank of England base rate impacts mortgage interest rates.

They're important for anyone who has a mortgage or wants to get one.

Usually, mortgage lenders change their mortgage rates quite soon after the base rate is changed.

The graph below shows you how mortgage rates change when the Bank of England bank rate changes.

If the bank rate goes up:

  • funding for lenders becomes more expensive

  • lenders pass that extra cost onto borrowers

  • borrowers usually pay more in interest on their mortgage every month

To avoid the possibility of higher interest rates you can choose a fixed rate mortgage.

If the bank rate goes down:

  • funding for lenders becomes cheaper

  • borrowers usually pay less in interest on their mortgage every month

Despite the base rate remaining unchanged between February 2010 and July 2016, mortgage rates have gradually fallen over time.

However, the Bank of England's decision to reduce the base rate in March 2020 in response to the pandemic directly impacted mortgage rates.

2 and 5 year fixed rates were as low as 1.2 in September 2021.

As the base rate slowly climbs back up, so have mortgage rates. If the base rate continues to increase in 2022, mortgage rates will rise in accordance.

The base rate after Brexit

No one is sure how rates will change now that the UK has left the EU.

The UK and the EU are set to clash again as the UK tries to get a Canada style free trade agreement.

Both sides said they’d walk away from talks on a Brexit trade deal unless the other side gave way on their red lines.

If you’re worried that the base rate going up again, now could be a good time to consider fixing your mortgage. This could be a good time as the base rate is currently very low.

Guides to help you afford your mortgage

Sources

¹ BBC News: UK interest rates: How does a rise affect me?

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