The Bank of England monetary policy committee has taken the decision to increase interest rates for only the second time in the last decade.
At its highest level since March 2009, interest rates have increased by 0.25 per cent to 0.75 per cent following stable growth in the UK economy over the last few months. It had been widely expected by experts that the Bank of England (BoE) would raise the rates in May 2018, however a temporary dip in spending figures – put down to the freak ‘Beast from the East’ weather conditions earlier in the year – prevented the rise.
But, with the economy back on track, the BoE has now upped the rates for the second time in succession, following the 0.25 per cent raise in November 2017. The monetary policy committee has also predicted a further three rate increases over the next three years.
Today’s announcement comes as good news to savers, as the healthy interest rate increase is set to help bolster any savings they have. Yet, for those currently paying a mortgage, the outcome of rate rise paints a varied picture.
How will the interest rate rise impact my mortgage?
As a whole, the interest rate rise will have little impact on a large number of mortgage borrowers, with the majority being on fixed-rate mortgages. Although changes may happen in the future to these rates, there is currently no immediate concern.
According to Robert Gardner, chief economist at Nationwide Building Society, the 0.25 per cent rise in interest rates will, on average, cost those with a variable mortgage an additional £16 a month, totalling £192 per annum in extra payments. When this monthly figure of £16 is added to the current average monthly mortgage payment in the UK of £671.23, as reports the Money Advice Service, the increase caused by the rate rises is only minimal and is unlikely to have a detrimental impact on those with a variable mortgage.
So, for the 3.5m borrowers currently on variable or tracker mortgages, the increase may have an impact on their mortgage payments, but it will only be very slight.
Can I change my mortgage to appease the interest rate rise?
The best action to take is to review the type of mortgage you currently have – especially if you haven’t’ changed your mortgage over the last five years. You may have been on a fixed-term mortgage and been switched to a variable rate without knowing, which would now cause an increase in your monthly mortgage payments. If this has happened, it’s best to get your mortgage back on a fixed rate.
Although the fixed rates may go up after today’s announcement, it is worth accessing this sort of mortgage if you’re currently on a variable or tracker rate mortgage. This way you’ll have that additional security of not facing another interest hike to your mortgage if, as expected, the rates go up significantly over the coming years.