The Market by letters – B

Moving on to B for this week’s look at the mortgage market,

B is for Bank of England Base Rate (BoEBR).

The Bank of England Base Rate is the UK’s official rate of interest, and is decided once a month (on the first or 2nd Thursday of the month) by the Monetary Policy Committee (MPC).  It is the interest rate the Bank of England will lend money to other institutions,

The Monetary Policy Committee is primarily charged with maintaining “monetary stability” – low inflation rates, and confidence in the economy.

In a nutshell, lowering or raising interest rates affects spending in the economy – a reduction in interest rates makes saving less attractive and borrowing (and spending!) more attractive.  If you’re so inclined you can read a more detailed explanation here http://www.bankofengland.co.uk/monetarypolicy/how.htm

Major Banks and building societies will normally use the Bank of England Base Rate when setting the rates for deposits and borrowing (either directly or indirectly), so it has a direct effect on the cost of our mortgages.  In recent times, with the base rate at historic lows, the correlation between lenders variable         rates and the BoEBR is less clear.

So, once a month spare a thought for the 8 men and 1 woman (as of today - members sit for a fixed term after which they may be replaced or re-appointed) of the MPC who will be sat in a darkened room in the Bank of England, making a decision that will directly affect the cost of your mortgage.

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