About
UK Interest Rates
 In the UK, different kinds of interest rates
may apply depending on the particular details set in the
loan agreement. In most cases, interest is calculated according
to the cost of the loan to the lender, with a certain amount
of profit added to the final figure. Anytime money is borrowed,
the lender and the person or company taking out the loan
will need to arrive at a rate of interest that both parties
can agree to. Some personal loans may have fixed interest
rates, while the interest on mortgage loans depends on the
type of mortgage that was taken out on the property.
Because
all loans offered by banks and building societies to their
clients (e.g. personal loans, credit cards, mortgages)
are charged interest, any changes in these interest rates
that may occur will have an immediate impact on your finances
(this
also goes for interest you earn through money you have in
your savings account).
To give an example, almost all mortgages
are charged a variable rate of interest payable on the
borrowed amount. Now since
this interest rate is “variable”, it is linked
to the Bank of England base rate which is in turn affected
by current market conditions. In other words, the interest
rate often changes, usually from month to month. So depending
on the prevailing economic situation, the mortgage you
took out at a low rate of interest initially may end up
costing
you more, or less, as time goes by and the base rate undergoes
adjustments.
Normally, the Bank of England makes changes
to the base rate to help keep the country’s economy
well-balanced. By adjusting the base rate, the Bank of
England can influence
the rate of inflation, whether to encourage it or slow
it down, to smoothen out potential fluctuations that undermine
economic
stability. |
