Those of you that read our weekly articles here at Mortgage Required will recall that we warned of the widely-predicted rise in the Bank of England Base Rate back in the first quarter of 2018.
Well, this week it has happened. But what will this mean for you?
Why the Rise?
The first thing to remember is that a rise in interest rates is usually one of the major anti-inflationary tools in the Bank’s arsenal. The idea is that the economy can be regulated and inflation controlled by increasing the base lending rate. In the past, this somewhat blunt instrument has been quite effective. The economy is considered to be in pretty good shape and, after a decade of printing money, the Bank of England now considers there is a danger of inflation - hence the rise.
As much as the rise, it was the much vaunted increase after a decade of historically low interest rates. The rise from 0.5% to 0.75% is hardly huge, although if your household budget is already on your limit, it might still be painful. I suppose you need to consider that against the potential cost of an inflationary economy where food prices and energy costs rise excessively.
Who is affected?
If you are a borrower with a variable rate or tracker mortgage then you are likely to see an increase in your borrowing costs. By how much? Well, the holder of the average £150,000 variable rate mortgage might see her monthly payments increase by about £19 per month.
The good news is that those of us with fixed rate or capped rate mortgages won’t see that rise, at least not immediately. That’s why we were recommending that those with fixed rate or capped rate mortgages coming to an end start to consider refinancing and locking in those fixed rates.
The other people likely to be affected by changes in interest rates are savers and pensioners - and those on fixed incomes. Savers might see a tiny increase in the interest they receive on their savings, but it’ll likely be negligible. However, those buying annuities are likely to see a more marked interest in the next few months. Those on fixed incomes will be hoping that a rise in interest rates will dampen inflation and keep their monthly expenditure under control.
It’s also worth bearing in mind that with the exception of the last decade, base rates have been at anything up to 15%, so this 0.25% increase is not, in itself, very worrying. The trend, if there is one, might be worth preparing for and one way to shield yourself is to always be considering when it might be a good time to refinance or restructure your debt, whether that be a credit card, overdraft or mortgage.
Whatever your circumstances, contact us on 01628 507477 to discuss your needs.
Related articles:
Download our Free First Time Buyers Guide
Recent posts
Recent research from Halifax has revealed the most sought-after locations for first time buyers in Britain.
The data which was taken from the Halifax House Price Index looked at areas outside of London where those looking to purchase their first property were buying. Despite high property prices and increased rates, these first time buyer hotspots have remained popular.
How can I look after my mental health?
5 days ago
Taking care of your mental health means looking after your emotional, psychological, and social wellbeing. There are several ways we can practice self-care that will help to improve our physical and mental health. This can help to reduce our risk of illness, manage stress, and boost our energy levels!
First Time Buyer to do List
8 days ago
Buying your first home is very exciting but it can also be very daunting which is why we have set out a “to do list” to help you get started.
Bank of England Holds Base Rate at 5%
22 days ago
With UK inflation remaining at 2.2% which is slightly above the Bank of England’s 2% target, the decision was made on Thursday 19th September to keep the base rate at 5%.
Virgin Money and Hive Energy introduce new "green" mortgage product called Retrofit Boost Mortgage with the aim to help homeowners improve the energy efficiency of their home by offering cashback between £3,000 and £15,000
According to recent findings by LV= where 4,000 UK adults were surveyed, mortgage holders said that were likely to consider equity release to free up some money to take care of expenditures in later life.
A mortgage market rate war
9 Aug 2024
Following the recent decision by the Bank of England’s Monetary Policy Committee to cut the base rate from 5.25% to 5% (the first reduction seen in over four years), we have seen lots of lenders reducing their rates to remain competitive.
August in Bloom: Gardening Tips
7 Aug 2024
More information
Trusted by
