On the 2nd November, the Bank of England announced that the base rate would increase from 0.25% to 0.5% in the first interest rate rise in the last decade.
Although the rise is only small, millions of people across the country are likely to see a change in their finances. Here’s how the interest rate rise could affect you based on your circumstances.
Homeowners
Do you have a tracker mortgage or a standard variable rate mortgage?
The Bank of England’s announcement could be bad news for millions of homeowners across the country. Homeowners whose mortgages have fallen onto their lender’s standard variable rate (SVR) may see their repayments increase as a result of the change. Homeowners with a tracker mortgage may also be affected.
By acting fast, many homeowners may be able to protect themselves from interest rate rises. Contacting a mortgage broker can be a great way of comparing hundreds of deals across the market to find the most affordable one for you.
By fixing yourself into one of these deals, whether it’s for two, five or 10 years, you can rest assured your repayments won’t rise for the duration of your fixed period.
Do you have a fixed rate mortgage?
If you have a fixed rate mortgage, you won’t be affected by the change for the duration of your fixed rate period. If your fixed rate period is coming to an end, it may be worth looking into new deals sooner rather than later and locking yourself into another affordable mortgage product.
Renters
Since homeownership has declined in the last 10 years and fixed rate mortgages have risen in popularity amongst those who have bought their own homes, research from the Resolution Foundation suggests that only 11% of UK households are immediately affected by the rate rise, compared to 19% a decade ago. However, there is a risk that the cost of rising interest rates could be passed onto tenants if their landlords have variable rate mortgages.
First time buyers
A change in interest rates could work both in favour and against first time buyers. On the one hand, it could see them earn more interest on their savings and boost their deposit in the process. On the other hand, when first time buyers come to apply for a mortgage on their own place, they may be subject to higher interest rates on the loan than they would previously.
Comparing mortgage deals from hundreds of lenders can help first time buyers ensure they’re getting the best mortgage deal for them.
Savers
Savers are perhaps the most likely to benefit from the Bank of England’s recent interest rate announcement. This is because banks may increase the amount of interest they offer on their current and savings accounts.
To make the most of interest rates, it’s wise to compare bank accounts to find the best one for you. At the time of writing this article, current accounts are outperforming savings accounts by offering much higher interest rates. As a result, many account holders are ditching traditional savings accounts and storing their savings in high interest current accounts instead.
It’s unclear which banks are going to change their interest rates at this stage.
Borrowers
Like mortgage holders, borrowers with consumer or credit card debts may see the interest they owe increase. If possible, it may be wise to pay debts off sooner rather than later. By doing so, many borrowers could potentially slash the amount of interest they owe and save thousands of pounds in the process.
If you’d like to apply for a mortgage, remortgage your home, or you’re unsure what to do with your money in the wake of the Bank of England’s announcement, please get in touch with the team at TaylorMade.
