The Bank of England Base Rate - The facts you absolutely need to know
With so many people considering taking out a Tracker Mortgage or simply staying on a variable rate they have dropped onto at the end of their deal, the movement of the Bank of England Base Rate has become a topic that many people are becoming ever more interested in.
Let's be frank the only people who truly know what the Bank of England Base Rate will do going forward are the members of the Monetary Policy Committee and even they may not be certain as to the best course of action in terms of future Base Rate movements right nowHaving said that, if you are on a variable rate Mortgage or you are thinking about moving onto a variable rate Mortgage, there are some Bank of England Base Rate facts that you should definitely take note of.
Fact 1: The Reach of the Bank of England Base RateThe Bank of England Base Rate has a massive affect on the economy and therefore your personal circumstances. The Bank of England Base Rate plays a major factor in deciding how much everyday goods cost you to buy, how high or low your Mortgage rate is, how much of a return you see on your savings and investments, how much it costs you to buy foreign currency etcMost people know very little about how this rate works, which is surprising given its awesome level of influence, but if you don't take the time to understand the Bank of England Base Rate and you are on a variable rate mortgage, you could pay the price for your ignorance later on
Fact 2: The Monetary Policy Committee The committee is made up of 9 members chosen for their financial expertise. These members serve for a specific time and then are replaced. This committee meets every month, and make a decision about what should be done, usually on the first or second Thursday of the month. The decision is announced at 12 noon and you will usually find it by listening to the radio, watching the lunchtime news or looking online. You can look at the minutes of their meetings to see who thought what by going onto the Bank of England website. Doing this can give you some insight as to how close the decision was
Fact 3: Movements in the Bank of England Base RateThe Bank of England has previously been as high as 17% back in the19 70s which caused many people who were unprepared great financial difficulty. The lowest the Base Rate has ever been in its 300 year history is 0.5% which it fell to in March 2009. In theory the Monetary Policy Committee could increase the rate by any amount if they felt it was necessary. However, any movement of the rate has serious implications for the economy and is only decided upon after very careful thought. When the rate has moved in the past it has most frequently moved by 0.25%, 0.5% or 1%.
Fact 4: There are things you can do to protect yourself against Bank of England Base Rate increasesFirst thing is first, get in touch with your lender and ask them to work out what the difference to your monthly Mortgage repayments might be if the Bank of England Base Rate were to increase by 0.5%. By finding this out now you can work out what increases will mean to your pocket. Another thing you can do is to tell your lender what your monthly mortgage repayment would need to be for you to start to struggle to meet it, they should then be able to work out for you what the Bank of England Base Rate would need to go up by.
You could also take advantage of the low rates and over-repay to bring your balance down or keep money to one side in case the rates increase. This will give you a lower payment or a buffer in the event that the rates increase.You may also want to keep your eye on the Bank of England Base Rate and give your lender a quick call from time to time to ask about fixed rates. If you know what these rates are you can move quickly if you see the Base Rate rising. In fact, your lender may allow you to reserve a fixed rate deal without committing yourself to having to take it, but do be aware that many lenders do not like to do this and may only allow you to do this once if at all.
Questions and Answers
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