Question about BoE Base Rates x Mortgage Rates

MarcMCFC1986

I've had a look online for a while for the answer to this, but can't find a straight answer, so...

Is the BoE Base Rate the minimum that Mortgage Rates can be i.e. If the Base Rate is 5.25% then there will never be a mortgage rate lower than that?

Or

Is the BoE Base Rate purely a guideline, but the banks can do whatever they want, i.e. In theory could they offer a Mortgage Rate of 3.5% even if the BoE Base Rate is 5.25%?

I've read some articles that say BoE Base Rate and Mortgage Rates aren't directly linked - but then I don't understand why Mortgage Rates are going up because of the Base Rate.

I've learnt a lot about Mortgages/Interest Rates etc. in the seven years since I bought my house, but this is something I just can't find an answer to - so hoping someone here can explain it like I'm a 10-year old.

la531983

MarcMCFC1986 said:

I've had a look online for a while for the answer to this, but can't find a straight answer, so...

Is the BoE Base Rate the minimum that Mortgage Rates can be i.e. If the Base Rate is 5.25% then there will never be a mortgage rate lower than that?

Or

Is the BoE Base Rate purely a guideline, but the banks can do whatever they want, i.e. In theory could they offer a Mortgage Rate of 3.5% even if the BoE Base Rate is 5.25%?

.

The latter. Banks will attempt to predict where rates are going and price it into their products, for example a 4.99% BTL rate for 5 years has just appeared this week, despite the BoE base rate being 0.26% higher.

Its the same theory for energy fixes too. 

Its the reason the banks whacked the rates right up when Truss made her "speech" last year, because they were expecting carnage with the interest rates. Conversely there is an expectation now that the rates are likely to plateau out anytime soon.

Maka344

Mortgage rates are based on gilts. The two-year gilt was yielding more than 5% yesterday, but fell to 4.85% today, while the five-year gilt yield fell from 4.53% to 4.42%.

fergie_

Its based on a combination of future predictions (what will happen?), risk (ie how likely a default?), market pressures (what are others offering and do we want more or less business?) and current 'swap' rates (ie when you draw down the funds, how much will it cost the lender to cover?)

So yes, the BoE rate is a guide, but it has absolutely no control on mortgages, unless for example you are on a variable product that is directly linked to it.

housebuyer143

They set the rates based on swap rates as that's the rate they can borrow money at from other organisations. Swap rates are based on market predictions on what the rates are going to do and base rate rises will factor into this.