Interest rates
The base rate of borrowing is set on a monthly basis by the Bank of England’s monetary policy committee. Interest rates is the main factor that affect how much you repay in monthly mortgage payments to your lender and is the most important variable determining house price inflation. Mortgage lenders use the base rate to set their own rates of interest, therefore anyone with a variable rate mortgage will see their monthly repayments rise and fall when the Bank of England moves the base rate as the lender is almost certain to track the market.
A £120,000 interest only mortgage at 3.5 per cent would cost a borrower £350 per month in repayments. If the Bank of England were to raise the base rate by 0.25 and the lender was to match this amount then the cost of those monthly repayments would increase to £375 for the same period.
