August 2016 ushered in the lowest ever Bank of England Base rate at a staggering 0.25%. To put this in perspective, the highest Bank of England Base Rate was set at 15% during the Summer of 1990.
The base rate is set by the Monetary Policy Committee of the Bank of England. The Bank is independent from Government and its committee sits every month. The base rate is the rate of interest that it is prepared to pay other banks on deposits they lodge with the bank. It effectively sets parameters upon which other banks and lenders are encouraged to lend. Of course, those lenders add a margin for profit and so homeowners will be used to being quoted a lending rate based upon the base rate plus a margin, perhaps 0.5 - 2%.
After the credit crunch in 2008, many banks stopped lending on terms relating to the Bank’s base rate (which was reduced to 0.5%) and instead they encouraged lenders to borrow on LIBOR (The London Interbank Offered Rate). This is the rate set by the larger banks and defines the rate at which they are prepared to lend money to each other on a short term basis.
Overnight LIBOR is currently 0.4% at the time of writing.
The Bank of England uses its base rate to regulate lending and money supply. As money becomes more expensive, the cost of borrowing rises, reducing demand in the economy and thus reducing prices of assets, including houses. However, post 2008 the economy has been struggling and with interest rates already very low, the ability of the bank to encourage economic activity has been limited. In fact, it has taken the unusual step of ‘creating money’ through what is somewhat creatively called ‘quantitative easing’.
Of course, during this time of low interest rates and low unemployment and a growing population and demand for homes, especially in the South East, house prices have been resolutely on the up. The great unknown is what happens if inflation rears its ugly head or, perhaps worse still, deflation takes hold. The Bank’s ability to control the economy is seemingly hamstrung with interest rates now at 0.25% and some say that simply creating more and more money risks unbounded financial catastrophe in the future.
In the meantime, the homebuyer is enjoying historically low levels in the cost of mortgages. In the short term at least, this will continue to be welcomed by home owners.
For more information speak to a mortgage adviser on 01628 507477 or contact us .
Yesterday
Mortgage lenders are starting to recognise their “Green” responsibilities when it comes to the different products they offer.
A recent study by Boon Brokers where 1,000 people who had used an estate agent over the last year were surveyed, showed that a whopping 52% said they were pressured into using the estate agents’ in-house mortgage broker.
11 days ago
Analysts are predicting further rate cuts this year, with the next one possibly coming down to 4% when the Bank of England’s Monetary Policy Committee meet on Thursday 7th August 2025.
The Financial Conduct Authority (FCA) has shared new changes to mortgage rules with the aim to simplify remortgaging, and encourage competition within the mortgage market.
18 days ago
Lloyds Banking Group has jumped on the bandwagon to boost lending for first-time buyers as they allocate an additional £4 billion to help first-time buyers on to the property ladder.
As the Loan to Income (LTI) cap has been increased to 5.5 times income, applicants who fit the First Time Buyer Boost criteria could borrow up to 22% more.
The government is introducing mortgage reforms to boost homeownership, stimulate economic growth, and make the housing market more accessible, especially for first-time buyers.
Chancellor Rachel Reeves has announced the most significant mortgage reforms in over a decade—great news for those dreaming of homeownership.
21 days ago
Nationwide ease their ‘Helping Hand’ mortgage designed to help first-time buyers get onto the property ladder by allowing them to borrow up to six times their income.
27 days ago
Keeping the kids entertained over the six-week summer holidays isn’t always easy, especially with the cost-of-living making it even more difficult. Below is a list of fun, inexpensive ideas to do over the break