The current government granted the Bank of England independence to set interest rates to achieve an inflation target of 2.0%. Previously interest rates were set by the government and were therefore influenced by political factors. The Monetary Policy committee meets once a month to consider interest rates.

The Base Rate of course influences mortgage rates. However, mortgage lenders do not always follow the Bank of England lead. If they did the mortgage rate would be 4.0% not 5.50%. If you want a variable rate mortgage then you should have a tracker mortgage from this analysis.

Bank of England Base Rate				Mortgage Interest Rate
Oct Feb Mar Apr May Jul Sep Oct	1990 1991 1991 1991 1991 1991 1991 1991	14.00% 13.00% 12.50% 12.00% 11.50% 11.00% 10.50% 10.50% Year 1991	-1% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5% - -3.5%	14.50% 14.50% 13.75% 13.75% 12.95% 12.45% 11.95% 11.50%	- - -0.75% - -0.80% -0.50% -0.50% -0.50% -3.00%
Bank of England Base Rate				Mortgage Interest Rate
Apr May June Sept Oct Nov Dec	1992 1992 1992 1992 1992 1992 1992	10.50% 10.00% 10.00% 9.00% 8.00% 7.00% 7.00% Year 1992	- -0.5% - -1.00% -1.00% -1.00% - -3.5%	10.95% 10.95% 10.65% 10.65% 10.65% 9.99 % 9.29 %	-0.55% - -0.3% - - -0.66% -0.74% -2.21%
Bank of England Base Rate				Mortgage Interest Rate
Jan Mar Nov	1993 1993 1993	6.00% 6.00% 5.50% Year 1993	-1.00% - -0.5% -1.5%	8.55% 7.99%	0.74% 0.56% -1.3%
Bank of England Base Rate				Mortgage Interest Rate
Jan Feb Sept Oct Dec	1994 1994 1994 1994 1994	5.50% 5.25% 5.75% 5.75% 6.25% Year 1994	- -0.25% +0.5% - +0.5% +0.75%	9.64% 9.64% 9.64% 8.10% 8.10%	-0.25% - - 0.46% - -0.21%
Bank of England Base Rate				Mortgage Interest Rate
Feb Oct Dec	1995 1995 1995	6.75% 6.75% 6.50% Year 1995	-0.5% - -0.25% +0.25%	8.25% 7.99% 7.99%	+0.25% -0.36% - -0.11%
Bank of England Base Rate				Mortgage Interest Rate
Jan Feb Mar Apr June Aug Oct	1996 1996 1996 1996 1996 1996 1996	6.25% 6.25% 6.00% 6.00% 5.75% 5.75% 6.00% Year 1996	-0.25% - -0.25% - -0.25% - +0.25% -0.50%	7.74% 7.49% 7.49% 7.25% 7.25% 6.99% 6.99 %	-0.25% -0.25% - -0.24% - -0.26% - -1.00%
Bank of England Base Rate				Mortgage Interest Rate
Jan May Jun Jul Aug Sept Nov	1997 1997 1997 1997 1997 1997 1997	6.00% 6.25% 6.50% 6.75% 7.00% 7.00% 7.25% Year 1997	- +0.25% +0.25% +0.25% +0.25% - +0.25% +1.25%	7.25% 7.25% 7.60% 7.95% 8.20% 8.45% 8.45%	+0.26 - +0.35% +0.35% +0.25% +0.25% +1.46%
Bank of England Base Rate				Mortgage Interest Rate
Jan Jun Jul Oct Nov Dec	1998 1998 1998 1998 1998 1998	7.25% 7.50% 7.50% 7.25% 6.75% 6.25% Year1998	- +0.25% - -0.25% -0.50% -0.50% -1.00%	8.70% 8.70% 8.95% 8.95% 8.70% 8.20%	+0.25% - +0.25% - -0.25% -0.50% -0.25 %
Bank of England Base Rate				Mortgage Interest Rate
Jan Feb Mar May Jun Sept Oct Nov Dec	1999 1999 1999 1999 1999 1999 1999 1999 1999	6.00% 5.50% 5.25% 5.25% 5.00% 5.25% 5.25% 5.50% 5.50% Year 1999	-0.25% -0.50% -0.25% - -0.25% +0.25% - -0.25% - -0.75%	7.70 7.45 6.95 6.55 6.55 6.85 6.99 6.99 7.24	-0.5% -0.25% -0.50% -0.1% - - +0.24% - +0.25% -0.96%
Bank of England Base Rate				Mortgage Interest Rate
Jan Feb Mar	2000 2000 2000	5.75% 6.00% 6.00% Year 2000	+0.25% +0.25% - +0.5%	7.24% 7.49% 7.74%	- +0.25% +0.25 % +0.50%
Feb Mar Apr May Jun Aug Sept Oct Nov Dec	2001 2001 2001 2001 2001 2001 2001 2001 2001 2001	5.75% 5.75% 5.50% 5.25% 5.25% 5.00% 4.75% 4.50% 4.00% 4.00 % Year 2001	-0.25% - -0.25% -0.25% - -0.25% -0.25% -0.25% -0.50% - -2.0%	7.74% 7.50% 7.50% 7.25% 7.00% 7.00% 6.75% 6.50% 6.25% 5.75%	- -0.24% - -0.24% -0.25% - -0.25% -0.25% -0.25% -0.5% -1.99%
Bank of England Base Rate				Mortgage Interest Rate
Feb	2003	3.75%	-0.25%	5.75%	-0.1%
July	2003	3.50%	-0.25%	5.50%	-0.15%
Nov	2003	3.75% Year 2003	+0.25% -0.25%	5.75%	+0.25% +0.10%
Feb	2004	4.00%	+0.25%	6.00%	+0.25%
May	2004	4.25%	+0.25%	6.25%	+0.25%
June	2004	4.50%	+0.25%	6.5%	+0.25%
Aug	2004	4.75% Year 2004	+0.25% +1.00%	6.75%	+0.25% +1%

In the late 90's the gap between standard variable rate and Bank Rate was only around 1.5% - it is now 2%.

(Sources - Bank of England Base Rate. Halifax Existing Borrower Rate.)

It is easy to see that although mortgage rates do follow the Bank of England lead, they do not automatically cut in line. Of course other lenders will have different mortgage rates for existing customers than the Halifax. Some such as the Nationwide Building Society and the Yorkshire Building Society have lower interest rates. Others such as the Abbey National have higher rates.

It is important when considering a discounted mortgage or remortgage product to look at the history of their mortgage interest rates. It is only since mutuality has become a marketing issue that the mortgage rates of the Nationwide Building Society, Yorkshire Building Society and Britannia Building Society have undercut their mortgage interest rates below that of the Halifax, Abbey National and C & G. It is however our opinion that this interest rate differential will remain, but watch their mutual building society status.

The Case for Tracker Mortgages
If mortgage interest rates had moved in line with the Bank of England Base Rate throughout this period the mortgage rate should be 4.0%.

Oct 1990
Base Rate	Mortgage Interest Rate	Base Rate	Mortgage Interest Rate
14.00%	14.50%	4.75%	6.75%

Linkage to the Bank of England Rate by having a Tracker Mortgage Rate eliminates the possibilities of differentials arising. Even if you elect for a Building Society, such as Nationwide, Yorkshire or Leeds and Holbeck, and you have a tie in, if they do convert to a Bank then you may end up paying more. An example of this is the Bradford & Bingley. When the Bradford & Bingley converted to a Bank, the borrowers voted against it as they feared an increase in their mortgage rates, which had been kept low due to mutuality. Conversion to a bank has meant Bradford and Bingley customers have paid more. Indeed the Bradford & Bingley now do not promote their own mortgages but offer independent mortgage advice on all other lenders products,but do regrettably charge a fee.

Virtually all lenders have a mortgage interest rate for existing customers linked to the Bank of England rate, but following the Ombudsmans ruling against the Halifax, Abbey National & Nationwide it is unlikely that borrowers will be placed on this unless they request it.

 

 

 

 

 

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