Questions And Answers

The mortgage that is most affected by the BoE base rate would be a tracker mortgage. This is one that follows the base rate (hence the name tracker) This means your monthly payments will go up as the base rate does. At the moment this is popular as the base rate is low at 0.5%. I believe these are the most popular at the moment but you will need an excellent credit history and have a large deposit, probably close to 10%.

Part of the reason the BoE base rate has a relationship to mortgages is that the base rate is that it is the rate at which banks borrow from the BoE. Alot of this is short term lending and mainly overnight to balance the banks books. Originally it was called the Repo Rate. The definition from wiki is here; The official bank rate has existed in various forms since 1694 and has ranged from 0.5% to 17%.[4] The name of this key interest rate has changed over the years. The current name "Official Bank Rate" was introduced in 2006[4] and replaced the previous title "Repo Rate" (repo is short for repurchase agreement) in 1997. Previously (between 1981 and 1997) the title was "Minimum Band 1 Dealing Rate" and prior to that the "Minimum Lending Rate". The rate at which banks park their money with Reserve Bank is called the repo rate; the Reserve Bank parks its money with other banks at the reverse repo rate.

Remember that the base rate is also a major reflection on the state of the market. It is set by the Monetary Policy Committee. In this case it is low to encourage banks to lend institutionally more freely and also to offer mortgages at low rates to the public

I have today blogged about the massive rip off going on in the mortgage market today. http://www.totalinvestor.co.uk/i/blogs/show/231