Central Bank base rates
The affects of interest rate changes
Other affects cause by increased interest rates are;
- Higher rates of inflation.
- Higher reserve requirements set by banks.
- Lower consumer spending caused by people choosing to save their money with higher returns.
- Higher increased rates can eventually lead to a contraction in the economy.
Types of interest rates
Standard Variable Rate (SVR)
The main rate most commonly used by commercial banks for lending to consumers.
In general commercial banks tend to follow the Central Bank base rate.
Since 2009 there has been a growing gap between the Base rate and the bank SVR where banks are no longer passing on full base rate cuts to their customers.
Mortgage Interest Rates
- Fixed Mortgage Rates are rates that are held at a certain percent over an agreed period of time.
Because the rates are fixed it gives holders greater security to rate rises.
- Variable Mortgage Rates are rate which are set by the banks SVR.
- Tracker Mortgage Rates are rates that follow the Central Bank base rate.
If the Central Bank reduces the base rates then the mortgage rate will also fall to a similar level.