Mortgage interest rates

Who decides what interest rates should be?


The Bank of England decide

The Monetary Policy Committee (MPC) at the Bank of England (BoE), meet every month to decide whether the interest rate should be changed.

 


Should you fix your mortgage or have a variable rate? Choosing whether to fix (and for how long) or to have a variable rate is never easy, and the reasons for choosing are different for everyone.

Your decision will depend upon your circumstances, on what you think is going to happen next in the economy, and how this makes you feel.

Most people choosing a 'two year deal' (fixed or variable) are relying on the economy not changing too much in the near future and want to take advantage of the low rates that are available at the moment.

Those that are choosing a 5 or 10 year fixed rate want the peace of mind of knowing what their mortgage will cost for foreseeable future.


because of inflation

The BoE target for inflation is 2% - extended high inflation would mean the cost of living will eventually be too much.

Low inflation, or deflation, is essentially the opposite.


whether to cut or raise rates.

If inflation goes above the target (or is forecast to rise above the target) then they will increase interest rates. Higher interest rates increase cost of borrowing and makes saving more attractive - i.e. stopping people spending and reducing inflationary pressures.

If inflation is below the target, then they may cut interest rates to boost spending and economic growth.

The MPC tries hard to predict future inflation by looking at many economic variables including employment, trade overseas and the overall growth of the country.

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