Recently, the Bank of England made the decision to raise interest rates for the first time in ten year – an increase back to 0.5% from the historic low rate of 0.25%. This marks a signal of intent from the BoE’s monetary policy committee and ultimately means that the cost of borrowing is on the up.
So how exactly will this affect the average UK household? First of all, standard procedure will see this change in the base interest rate reflected on the high street, with most retail banks increasing their mortgage rate by 0.25% in line with the BoE.
For those people who are currently on a variable or tracker mortgage, this will see their monthly expenditure rise in the run-up towards Christmas. According to recent stats from Nationwide, this amounts to around 5 million British people, which works out to just under half of all mortgage owners across the country. It’s also worth remembering that the increase comes at a time when most homeowners are experiencing a freeze in their earnings, which will ultimately mean less disposable income to spend at the end of each month.
Are rates expected to increase further?
As you’d probably expect, the Bank of England’s decision has provoked plenty of reaction from economists and social commentators. Some experts say that, although there will be an expected dip in demand within the housing market, this suggests a fledgling indication of greater confidence in the economy that could have a positive impact in the longer term.
In fact, it’s perhaps our best indication in over a decade that the air of caution surrounding the economy since the credit crunch is beginning to turn around. Speaking to journalists off the back of the announcement, Governor of the BoE Mark Carney explained that the country was perfectly placed to handle the increase:
“To be clear, even after today’s rate increase, monetary policy will provide significant support to jobs and activity. And the Monetary Policy Committee continues to expect that any future increases in interest rates would be at a gradual pace and to a limited extent.
“Fully 60% of mortgages are now at fixed interest rates. Even with this Bank Rate increase, many households will refinance onto lower interest rates than they are currently paying by around 30 basis points for those moving from an expiring two-year fixed rate deal to around two percentage points for someone refinancing an expiring five-year fixed rates deal.”
If you’re still looking to clarify how your own mortgage may be affected by the interest rate increase, we recommend getting in touch with your local bank or building society.
For a typical loan of £30,000.00 over 120 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £598.34.
Including a Product Fee of £2,400.00 (8% of the loan amount) and a Lending Fee of £807.00, the total amount repayable is £71,800.20.
Annual Interest Rates ranging from 11.88% to 29.38% (variable). Maximum 50.00% APRC. The loan must be paid back by your 70th birthday. Read more.
