Your mortgage terms and conditions or loan agreement will stipulate how the lender
calculates the interest rate charged on your mortgage. The calculation method used
will depend on the type of mortgage product you have with your lender. The following
are typical types of mortgage product:
- Variable – If the interest rate is variable, it may increase or decrease
in accordance with the terms and conditions of your mortgage or loan agreement.
The interest rates for variable mortgages are typically based on a variable base
rate plus a set product margin. See below for a fuller explanation of these features.
- Fixed – If the interest rate is fixed, it will not increase or decrease even
when the variable base rate associated with a product such as BBR or LIBOR changes.
At the end of the fixed period, the interest rate will usually revert to the relevant
variable base rate plus a set product margin.
- Discounted – If your interest rate is discounted, your monthly payments can
go up or down with the relevant variable base rate, but you receive a discount on
this interest rate for a set period of time. At the end of the discounted period
the interest rate will usually revert to the relevant variable base rate plus a
set product margin and the discount no longer applies.
Variable Base Rates
Unless your mortgage is currently in a period where a fixed interest rate applies
(see Product Types above), the calculation of your interest rate typically involves
the use of a variable base rate. Your interest rate will be recalculated at regular
periods throughout the life of your mortgage or loan. The following are examples
of variable base rates that lenders use:
- Bank of England Base Rate (BBR) – This is the rate the Bank of England sets
every month and publicly announces.
- London Inter Bank Offered Rate (LIBOR) – This is the rate at which banks
borrow funds from each other in London. As there is more than one LIBOR, it is important
to check your mortgage terms and conditions or loan agreement to be sure which LIBOR
your mortgage or loan is set against. If you require further information regarding the setting
of LIBOR you may wish to visit the British Banking Association’s Website at
- Standard Variable Rate (SVR) – This rate is set by your lender and moves
up or down at the lender’s discretion. The lender’s decision may include consideration
of changes in the BBR or LIBOR.
Current Variable Base Rates
0.52250% effective from 1st
0.50% effective from 1st
2.79% effective from 1st
Lenders apply changes in interest rate from the date the change becomes effective,
the effective date of the most recent change is shown above. If a change affects
you, it will be reflected in your next contractual monthly instalment after the
Product Margin – The interest rate applicable to your mortgage or loan may
be comprised of a base rate, such as BBR or LIBOR or a lender’s SVR, plus a product
margin (e.g. SVR + 2%). The product margin is fixed and would have been based on
the products the lender had available at the time your lender offered your mortgage.
If you have any queries about how the relevant interest rate applies to your mortgage
or loan, please contact our Customer Services Department on 0845 603 6304.
When will my monthly payments change?
Where the interest rate applicable to your mortgage or loan is a variable interest
rate, we will notify you of any rate change by letter 10 days in advance of it affecting
your monthly payment. The applicable interest rate will become effective from the
date shown in your letter, and the change will be reflected in your next contractual
Will the rate change next month?
That will depend on whether any variable interest rate applicable to your mortgage
or loan changes. Whether it changes is dependent on factors outside of the lender’s
control. What we can say is that you will be notified of any rate change 10 days
before it affects your monthly payment. Your rate may also change if you have come
to the end of a fixed or discounted interest rate period.
Why have my payments increased?
If a variable interest rate applies to your mortgage or loan, your payments will
increase if this variable rate increases. Alternatively your monthly payments may
have increased because you have come to the end of a fixed or discounted interest
rate period. Please refer to your mortgage offer or credit agreement for further
details. A payment change could be due to any or all of the following:
- Changes in the repayment method
- Fees that have been applied to the account
- Insurance premiums
My payments have increased and I cannot afford to meet the repayments?
If you are having trouble making your mortgage or loan repayments, please contact
our Collections Department on 0845 602 3806 as soon as possible.
Whilst we cannot offer legal, financial or monetary advice, we will consider your
personal and financial circumstances and may be able to help with your situation.
If, however, you do require legal, financial or monetary advice on your mortgage
or loan, you should consider speaking to the Citizens Advice Bureau (CAB) or someone
authorised to provide financial advice.
Visit our Independent External
Information section for further information. Also,
click here to read a copy of the Consumer Financial Education Body (CFEB) guide.