A number of lenders in the UK offer a type of variable rate mortgage, where the interest charged is linked to the Bank Base Rate.
The Bank Base Rate is set each month (usually on the first Thursday) by the Bank of England’s Monetary Policy Committee.
Base Rate tracker mortgages are charged at a set margin over the Bank Base Rate for the life of the loan. Typically, the rate charged will be the Bank Base Rate plus 1 per cent.
The advantage of this type of mortgage for the borrower is that the lender cannot widen its margin and charge a penal interest rate.
The disadvantage of a Base Rate tracker is that every time the Bank Base Rate goes up, the borrower’s mortgage rate and monthly payments increase automatically.
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