How Mortgage Interest Rates Work: An Explainer for Buyers
With another Bank of England announcement on interest rates expected this week, it’s a good time to answer a question we hear from plenty of buyers and sellers across Hull and East Yorkshire: who actually decides your mortgage interest rate?
Who Decides Your Mortgage Rate? A Quick Guide for Buyers and Sellers in Hull & East Yorkshire
Let’s break it down in simple terms.
The Bank Rate vs Your Mortgage Rate
First things first: the Bank of England’s base rate (or Bank Rate) and your mortgage rate are not the same thing.
The Bank Rate is set by the Bank of England.
Your mortgage rate is set by your chosen mortgage lender.
While they’re connected, they’re not directly controlled by each other.
Who Sets the Bank Rate?
The Bank of England is in charge of setting the official Bank Rate. They use it as a tool to help manage inflation and the wider UK economy. In general:
If inflation rises, the Bank may raise the Bank Rate.
If inflation falls, they may lower it to stimulate spending.
The decision is made by the Monetary Policy Committee (MPC) — a team of nine economic experts, including the Bank’s Governor. They meet eight times a year to review global and UK economic conditions before voting on whether to change the Bank Rate.
Who Sets Your Mortgage Rate?
Your mortgage interest rate is set by your lender — that could be a bank, building society, or mortgage provider.
They may be influenced by what the Bank of England does, but they’re not tied to it.
- Different lenders in the mortgage market will charge different rates based on a range of factors, including:
- The current Bank Rate and expected future changes
- How competitive they want to be in the mortgage market
- Their own profit margins
- The property type (new build, flat, detached home etc.)
- Your credit history
- Your loan-to-value ratio (how much you’re borrowing compared to the value of the property)
- All of this means that two buyers in East Yorkshire could get completely different mortgage rates from different lenders – even if they’re buying similar homes.
Types of Mortgages & What Affects Your Rate
Here’s how different mortgage types respond to changes in the Bank Rate:
- Variable Rate Mortgages: Your lender can change your rate at any time. It may go up or down if the Bank Rate changes — but they’re not required to follow it.
- Fixed-Rate Mortgages: Your interest rate stays the same for a set period (usually 2 or 5 years), regardless of Bank Rate changes.
- Tracker Mortgages: Your rate moves in line with the Bank Rate, usually by a set percentage.
The rate you get can have a big impact on your monthly repayments and the total amount you repay over the life of your mortgage — so getting the right advice is crucial.
Buying or Selling in Hull or East Yorkshire?
At Beercocks, we help buyers and sellers across Hull, Beverley, Driffield, and East Yorkshire make sense of the property market — including what rising or falling interest rates mean for your move.
Thinking about buying your next home? Or wondering what your current home is worth? Get in touch today for a no-obligation property valuation or a chat about your options.
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