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Interest rates
The ‘Bank of England’ (BoE) monetary policy committee meets once a month and decides what the interest rate for the UK is going to be. Broadly speaking this tells all the other banks what price they should be paying to borrow money from each other although the main aim of the BoE when setting interest rates is to keep control of inflation.
The banks set their own interest rates when it comes to lending money for mortgages although they are normally linked to the Bank of England base rate in some format. The main rate that a bank will offer is its Standard Variable Rate which is normally in the region of 2% above the BoE rate. This 2% is to pay the banks costs including staffing, rents etc and to make a profit.
In order to attract business however they will normally offer a range of introductory rates that provide an incentive to customers. At the end of the introductory rate the customer will revert to the SVR.
