- By Kevin Peachey & Tom Espiner
- BBC News
Interest rates set by the Bank of England affect mortgage, credit card and savings rates for millions of people across the UK.
In recent months, the Bank has held interest rates steady at 5.25% three times, after 14 increases to tackle rising prices.
What are interest rates and why do they change?
The Bank of England’s base rate, currently 5.25%, is what it charges other lenders to borrow money.
This has a knock-on effect on what other banks charge their customers for loans such as mortgages, as well as the interest they pay on savings.
The Bank’s Monetary Policy Committee meets eight times a year to decide what the base rate should be.
Once this starts to happen, the Bank may hold rates, or cut them.
How do interest rates affect me?
When interest rates rise or fall, more than 1.4 million people on tracker and standard variable rate (SVR) deals usually see an immediate change in their monthly payments.
About three-quarters of mortgage customers have fixed-rate deals. Their monthly payments aren’t immediately affected when the Bank changes rates, but future deals are.
Although mortgage rates have been lower recently, they are still much higher than they have been for much of the last decade.
This means homebuyers and those remortgaging will have to pay a lot more than if they had taken out the same mortgage a few years ago.
About 1.6 million deals will expire in 2024, according to banking trade body UK Finance.
You can see how your mortgage may be affected by interest rate changes by using our calculator:
Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans.
Lenders could decide to put their rates up, if they expect higher interest rates from the Bank of England, but if rates fall, interest payments may get cheaper.
Image source, Getty Images
Low interest rates are good for borrowers, but bad for savers
The Bank of England interest rate also affects how much savers can earn on their money.
Individual banks and building societies have been under pressure to pass on higher interest rates to customers.
There are some good deals on the market, so analysts say that customers should shop around, as money may be in accounts paying little or no interest.
When will UK interest rates go down?
The Bank rate is currently at its highest level for 15 years – since February 2008.
Although that is still twice the Bank’s target, the drop influenced the Bank’s decision to keep rates on hold.
It has to balance the need to slow price rises against the risk of damaging the economy – which has shown little sign of growth – by keeping rates high.
Are other countries raising their interest rates?
Interest rates have also been increasing across the world.
However, in recent months, other central banks – including the US Federal Reserve and the European Central Bank – have also paused their rate rises.
The UK has had one of the highest interest rates in the G7 – the group representing the world’s seven largest so-called “advanced” economies.
