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Guide to Essential Money Tools
Property Tools
Sterling rate tracker
The Bank of England’s Monetary Policy Committee’s decisions on setting interest rates have a direct impact on the cost of your loan.
Irish Permanent International (IPI) explains that UK interest rates are set monthly by the Bank of England Monetary Policy Committee (MPC). The MPC sets the interest rate it judges will keep inflation under control and enable the inflation target set by the Chancellor to be achieved. The rate set by the MPC, along with economists’ views on future interest rate movements, will affect confidence within the UK housing market, the level of house price inflation and the affordability of housing in both the homeowner and rental sectors.
Movements by the MPC will affect the cost of raising funds for lenders and the pricing of mortgage products on offer to existing and new borrowers.
The main issue affecting mortgage borrowers would be that the base rate will act as the main factor that determines the rate charged or offered by the lender.
Therefore, any increase or decrease in the base rate will impact on the level of their repayments. In the main, mortgage products will be offered at either a standard variable rate, tracker rate or on various fixed rate options. Many tracker or variable rate options may have discounted periods offering reduced repayments for an initial period.
Variable Rate – set by the lender, would generally rise and fall with the market. Movements may not always be passed on immediately.
Tracker Rate – set at a percentage above base rate and will rise in line with the market, therefore any rise or fall in the base rate is effective immediately.
Fixed Rate – guarantees the interest rate and, therefore, the cost of repayments for a pre-determined period. The market rate available at maturity of any fixed rate would be reflected by the base rate at that time.
What does APR mean?
APR stands for annual percentage rate. Banks are required to quote the APR when advertising a loan or borrowing rate. The APR calculates the total amount of interest that will be paid over the entire period of the loan.
It must also take into account any charges that the borrower has to pay during the loan period. The purpose of APR is to help a borrower appreciate the true cost of the loan.