The Bank of England has raised its Base Rate, as expected, from 0.25pc to 0.5pc: the first upward move in more than a decade. This will have an immediate impact on millions of households. Many existing mortgages will see their rates rise immediately; credit card rates will be expected to rise, as will the cost of personal loans and even overdrafts; cash savers will be hoping to see some highly-anticipated increases in their interest rates.
Of course, if you are on a fixed rate deal nothing will change until you reach the end of the fixed rate term. However, if you are on a tracker or variable rate mortgage, you can expect to see rates and your monthly payment rise immediately.
For example, a mortgage of £150,000.00 repayable over a term of 25 years on a rate of 4% (typical Standard Variable Rate, SVRs) would cost you around £800.00 per month. Following the rate rise of 0.25% to 0.50% this may increase the SVR to 4.25% and therefore your payment would be £821.00 per month.
The impact of this change will vary on the size and term of your mortgage. Fixed rates are often lower than SVRs so it’s well worth reviewing your mortgage to see if you can remortgage to another product or lender before rates get any higher.
Savers continue to get a raw deal with many banks and building societies not passing on the rate rise to their customers. However, rates have started to creep up with the Telegraph reporting on the 3 November that the Cash ISA and easy-access market has risen by around 0.1%, although not exactly reflective of the 0.25% increase.
With so much uncertainty in the market at the moment, it is incredibly difficult to predict. The Bank of England will be keeping a close eye on rising inflation and the impact of the recent rate rise.
Review what you have in place, the associated interest rate and what you are paying. If you would like to secure a different mortgage deal, get in touch.
With regards to your savings although rates are slowly rising it remains extremely challenging to get a satisfactory return on your cash, particularly when you consider that inflation is at 3.0%. This means that the real purchasing power of your money is decreasing over time unless you receive a return equal to that of inflation.
If you would like advice on potential ways to beat inflation, please speak to an independent financial adviser at Hugh James on 02920 660565.