In August, the Bank of England held interest rates at 0.75%, which is the base rate that’s been in place since August of last year, frequently mentioning ‘Brexit uncertainties’ during the decision process. The rates are set in accordance with current events and expected economic performance, while the Bank also aims to keep inflation around its 2% target.
Previously, the Bank has described holding rates as a ‘wait-and-see’ approach when it comes to Brexit. However, this may soon change with the deadline just around the corner. From your own personal finances to the overall economy, any change in interest rates can have far-reaching consequences. And once Brexit hits, there could well be a sudden hike in interest rates.
Why does the Bank of England base rate matter?
Essentially this base rate directly influences how much lenders and banks will charge you when borrowing money. It will also affect how much interest is paid on your savings. If this were to rise, banks would likely raise mortgage interest rates as well as loans. This would in turn drive up the cost of borrowing any money.
If the base rate was raised, then interest rates on savings would likely increase too. However, if the base rate was lowered it could have the opposite effect, with savings deals offering less of a return, but mortgage rates getting slightly cheaper.
There were calls for a rates cut after this year’s latest growth figures revealed the UK economy shrank by 0.2%. A cut would help to increase spending and stimulate growth. However, interest rates remained the same in September.
The Brexit effect
It’s very difficult to predict how exactly the fallout from Brexit might impact the UK economy. However, it can help to look back at what’s happened over the past couple of years, amidst the Brexit votes and negotiations.
Back in 2016, the Bank of England cut interest rates by 50% just over a month after the EU referendum, reducing the base rate from 0.5% to 0.25%. This was at a time when interest rates were already at a historic low due to the 2008 financial crisis. In November the following year, the base rate was restored to pre-referendum levels, to combat rising inflation. This decision was directly linked to Brexit by the Bank, who referenced the decrease in value of the pound following the referendum, and how the cost of things abroad increased. After the UK’s economy started to show some steady growth, it was August 2018 that saw interest rates rise to 0.75%, which was the first increase of over 0.5% in almost ten years.
In March of this year, around a week before the original planned Brexit date, the Bank voted to keep interest rates at the same level. Citing low unemployment and the fact that inflation was almost exactly on target, at 1.9%.
Despite the base rate being kept the same in August, things could still change after Brexit, leaving mortgages and people’s savings as the two key things that could be affected.
How can you prepare?
If the base rate rises, then you could be faced with higher repayments if you’re currently on a variable-rate or tracker mortgage. If you’re concerned about this, one solution could be to remortgage to a fixed-rate deal, as this can help you secure lower monthly repayments for a set period. Keep in mind though that if interest rates were to decrease following Brexit, then those on a variable-rate may see their repayments come down, and those on a fixed rate will miss out.
If you’re considering a remortgage, our experts at TaylorMade can eliminate the stress and hassle of the process, by helping you find the best deal to suit your circumstances. We can liaise with lenders, valuers and solicitors on your behalf, saving you time and money.
Get in touch with the team at TaylorMade today.
