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What happens to your mortgage and savings following a base rate increase?

Aug 31, 2018

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The current Bank of England base rate has risen 0.25% this month to 0.75%. Here, we look at what the base rate is and how this change might affect your mortgage or savings accounts.

What is an interest rate?

An interest rate is the percentage amount that will be charged (mortgages) or paid (savings) on an amount of money you have borrowed or saved.

For example if you borrow money from a bank or building society you will have to repay the borrowed amount, plus interest based on the interest rate set by the bank or building society.

If you put savings into a bank or building society account you will earn interest on this money at the interest rate set by the bank or building society.

All interest rates will be influenced by the Bank of England base rate.

Who sets the UK base rate?

The UK base rate is set periodically by the Bank of England’s Monetary Policy Committee (MPC).  Banks and building societies then set their own interest rates – on mortgage lending and savings - based on this rate. The MPC meets 8 times a year to look at possible rate changes.

What is the UK base rate?

The current UK base rate as of August 2018 is 0.75%. The rate can be checked at any time on the Bank of England’s website: www.bankofengland.co.uk (Displayed on home page as Current Bank Rate).

SAVINGS:

What happens to my savings if the interest rate increases?

If you have a savings account with a fixed term interest rate then this will not change for the duration of the term.

Other saving accounts could increase their interest rates over time, although this is at the discretion of the banks and building societies and may not happen.

How will I find out about my savings rate?

In the event of an interest rate change your bank or building society should inform you in advance – either on their website or by writing to you.

MORTGAGES:

My mortgage is based on a standard variable rate (SVR) – what does that mean?

A Standard Variable Rate (SVR) is a type of variable rate which can go up or down and is set by the lender. The SVR is the lender’s ‘default’ rate – without any limited deals or discounts attached. A lender can raise or reduce its SVR at any time. SVR tends to be influenced by changes in the UK base rate, however, a lender is not required to change its SVR in line with base rate changes.

What will happen to my mortgage following the UK base rate increase?

When the UK base rate increases then some, but not all mortgage payments may go up.

If you have a fixed mortgage then your rate will not change for the duration of your fixed deal. However, the rate your mortgage reverts onto at the end of the fixed rate deal may be influenced by the new base rate.

If you have a variable rate mortgage that is linked to the lender’s SVR, then it is likely that the interest rate on your mortgage may increase along with the base rate.

How will I find out about any increase in my mortgage payments?

Your bank or building society should inform you in advance about any increase - providing notice of any changes to mortgage rate, payments and its standard variable rate (SVR).

More information

If you would like to speak to someone at Teachers Building Society about your mortgage call 0800 378 669 or speak to a member of our savings team on 0800 783 2367.

For more information on the terminology used with regards to your mortgage or savings visit our jargon buster pages. You can find the savings jargon buster here and our mortgage jargon buster here.