Bank of England base rate guide
Base rate slashed to just 0.1% on 19th of March. Find out what the base rate is and how it affects your mortgage
What is the current base rate?
The Bank of England base rate is currently 0.1%. It was reduced from 0.25% to 0.1% on 19 March 2020 in an emergency move to help control the economic shock of the coronavirus pandemic.
The Bank reduced the base rate from 0.75% to 0.25% just 1 week earlier on 11 March.
On 7 May the Bank of England decided to keep the base rate at 0.1%.
This is the lowest interest rate the UK has ever seen.
On 21 May the governor of the Bank of England, Andrew Bailey, said that the base rate could be reduced even further, possibly becoming negative in the future.
Your home may be repossessed if you do not keep up repayments on your mortgage.
What is the Bank of England base rate?
The Bank of England base rate is essentially an interest rate. It’s also referred to as ‘bank rate’, ‘interest rate’ or simply ‘base rate’. The base rate is currently 0.1%.
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 and influences most other interest rates, including your savings accounts, credit cards, loans and mortgages.
How is the base rate set?
The base rate is decided by the Monetary Policy Committee (MPC). The committee meets roughly every 6 weeks.
It's next due to meet on 18 June and then after that on 6 August.
The MPC changes the base rate to meet government targets to keep inflation low and stable.
The rate was cut to a record low of 0.50% following the financial crisis of 2008/9, for example.
It stayed at the same level for years before being cut to a new low of 0.25% in August 2016 after the Brexit vote.
It stood at 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 just 0.1% on 19 March.
Can the base rate be negative?
On 21 May the Bank of England said that the base rate could be reduced from 0.1%, possibly to a negative interest rate.
The Bank's governor Andrew Bailey said they are 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 don't pay any interest when you borrow money. Instead, the lender pays you interest.
Even if the Bank of England sets a negative base rate, it doesn't mean that negative fixed rate mortgages will be available. But if you are on a tracker or discount rate mortgage, you could end up with smaller monthly repayments.
Bank of England base rate history
Here's how the Bank of England base rate has changed since 2000:
March 2020 (19th): 0.10%
March 2020 (11th): 0.25%
August 2018: 0.75%
November 2017: 0.50%
Aug 2016: 0.25%
March 2009: 0.50%
February 2009: 1.00%
January 2009: 1.50%
December 2008: 2.00%
November 2008: 3.00%
October 2008: 4.50%
April 2008: 5.00%
February 2008: 5.25%
December 2007: 5.50%
July 2007: 5.75%
May 2007: 5.50%
January 2007: 5.25%
November 2006: 5.00%
August 2006: 4.75%
August 2005: 4.50%
August 2004: 4.75%
June 2004: 4.50%
May 2004: 4.25%
February 2004: 4.00%
November 2003: 3.75%
July 2003: 3.50%
February 2003: 3.75%
November 2001: 4.00%
October 2001: 4.50%
September 2001: 4.75%
August 2001: 5.00%
May 2001: 5.25%
April 2001: 5.50%
February 2001: 5.75%
February 2000: 6.00%
How does the base rate affect mortgages?
The Bank of England base rate strongly influences mortgage interest rates and whether they go up or down. So it’s an important figure for anyone who has a mortgage or wants to get one.
If the bank rate goes up
Funding for lenders becomes more expensive
That extra cost is passed onto borrowers
Borrowers usually pay more in interest on their mortgage every month
To avoid the possibility of higher interest rates homebuyers tend to go for 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
Will the base rate rise after Brexit?
No one is certain which way rates will go 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, particularly as the base rate is currently very low.
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Your home could be repossessed if you don't keep up repayments on your mortgage.
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