In early August, The Bank of England announced they would raise interest rates. Now we see them at their highest level in nearly a decade. The base rate is now 0.75%, up from 0.5%.
The hot topic, Brexit, is the reason for this latest interest rate rise. The aim from the point of view of the government is to stamp down on inflation and prepare for a potential economic downturn as a result of Britain leaving the European Union.
It’s only the second time in a decade that the Bank of England has raised the interest rate. The Bank’s priority is to keep the rising cost of living under control. But the biggest effect this rise will be on those who have a mortgage.
Although interest rates have a huge effect on mortgages, they also have an impact on borrowing, pensions and savings too.
What does this rise mean?
The interest rate rise essentially impacts what banks can borrow from the Bank of England. Banks though are not obliged to follow the Bank of England’s rate decision, but they can influence the cost of borrowing or how much interest you earn on savings.
What and how interest rate rises could affect you
Mortgages: mortgage repayments can be affected by an interest rate charge, depending on what type of mortgage you have.
For those of you on a variable rate tracker mortgage, you are likely to see an impact on your mortgage repayment.
Those on a standard variable rate mortgage will more than likely see an increase too. How much is decided by the lender, so this isn’t a guarantee.
Fixed rate mortgages are likely to be affected too, after they reach the end of their current deal.
Borrowers: An interest rate rise can impact non-mortgage borrowers too. These are non-mortgage borrowings include loans, credit cards and overdrafts.
If you already have an unsecured borrowing this means it probably won’t be affected by a rise. The reason being that you will have agreed a fixed rate of interest when taking out the loan.
Savers: If you’re a saver it could be welcome news for you. There could be potential for an increase in the rates you are getting on variable rate saving accounts & cash ISAs. Banks and building societies will compete to offer the best deal on savings accounts.
Pensions: Interest rates rises can be good for people about to buy an annuity.
So, as you can see from the above, the latest interest rate rise works for some people but not for others.
How is this rate rise going to affect you? Whether you know or not, we’d love to hear from you.
If you have any questions, please get in touch!