Interest rates could rise as early as November, according to a member of the Bank of England’s rate-setting committee.
Gertjan Vlieghe has put forward arguments for a rise in rates in a speech to economists in London.
If interest rates do rise, it would be the first rise in borrowing costs for a decade. So what does this mean for you?
Who are the winners and losers of an interest rate increase?
An interest rate increase would be good news for savers, rewarding them for putting money away for the future. However, it would be bad news for borrowers and homeowners with variable rate mortgages and base rate tracker mortgages.
Homeowners on fixed rate mortgage deals will be protected from interest rate hikes until the end of their fixed rate period. Once their fixed term comes to an end, they’ll need to remortgage in order to avoid being placed on their lender’s standard variable rate (SVR).
How much would my mortgage repayments rise?
It’s unclear how much interest rates will rise, and the cost is likely to vary between households depending on the terms of the mortgage, the amount borrowed and its duration.
The average UK standard variable mortgage rate is 4.6%, meaning that someone on that rate with a £200,000 outstanding mortgage balance and 25 years remaining would pay an extra £117.10 a month if the interest rate was to rise one percentage point.
What should I do to protect my finances?
If you’re on your lender’s SVR - if your fixed rate period has already finished and you’ve been moved onto your lender’s SVR, it’s wise to remortgage your property before interest rates increase. By locking yourself into a new fixed rate deal, you can protect yourself from interest increases and ensure you’re paying a set amount for a fixed period of time.
If your fixed rate is coming to an end - if your fixed rate period is coming to an end, it may be worth remortgaging your property early. However, you’re likely to face early repayment charges or exit fees, so it’s wise to see a mortgage advisor or financial planner to determine whether the advantages outweigh the disadvantages. A financial expert will calculate the cost of remortgaging versus the amount you could potentially save over the course of your mortgage to see if it’s worth it.
If you’re on a variable rate - if you’re on a variable rate or tracker mortgage, see if remortgaging is an option. If not, it may be wise to cut back on your spending now in order to build up a financial buffer to be used if interest rates do rise.
If you’re looking to buy your first home - if you’re ready to buy your first home, it maybe wise to lock yourself into a fixed rate mortgage deal as soon as possible. A fixed term of five years or more will help to protect you from interest rate rises while ensuring you know exactly how much money you’re going to be spending for a set period of time. It’s worth noting that if interest rates were to fall, you’d be unable to make the most of them once you’ve fixed your deal.
What should I do with my savings?
If you’re saving money, an interest rate rise could reward you for squirreling away your money. It’s wise to compare bank accounts to see which offer the highest interest on your savings. At the moment, current accounts tend to be more rewarding than savings accounts, but this may change if interest rates grow.
