The Bank of England has raised the interest rate for only the second time in a decade.
The rate has risen by 0.25% to 0.75%. The Monetary policy committee lifts cost of borrowing to highest level since 2009
The move will increase the interest costs of more than three-and-a-half million residential mortgages that have variable or tracker rates.
But it will be welcomed by savers, who could see a lift in their interest rates over the coming months.
An extra 0.25% interest will add £12 a month to a £100,000 repayment mortgage and £25 on a £200,000 loan. However, nearly 70% of homebuyers have fixed-rate mortgages, so will be unaffected.
I have a variable rate mortgage. How much more will it cost?
If you are on a tracker mortgage that matches any rise in the base rate, then an extra 0.25% adds £12 a month to a £100,000 repayment mortgage and £25 on a £200,000 loan. For the 400,000 households on Nationwide’s base mortgage rate, their monthly bill will rise from £449 to £461 (on a loan size of £100,000) and from £897 to £922 on a £200,000 loan. (Source – The Guardian)
Sam Mitchell, CEO, online estate agents Housesimple.com, comments:
‘Although this rate rise is unlikely to cause widespread panic, there will be lots of homeowners feeling a little less financially comfortable today.
“A generation of homeowners have never experienced a rate rise, and now they have had two in the space of a year.
“No-one thought that historically low interest rates would carry on forever, but plenty of homeowners would probably admit they haven’t planned ahead for rate rises, unwisely assuming that rates wouldn’t rise for years.
“Now they have, it’s a shot across the bows. A small rise could actually be beneficial in the longer term if it makes people pause before committing to a mortgage that might over-stretch their finances.
“If you are thinking about taking out a mortgage, it’s always important to factor in possible rate rises to see if you could still pay the mortgage if rates went up by say 1%.
“Also, for anyone on a fixed rate mortgage, although they won’t feel the pain immediately, it’s worth checking what your monthly payments might go up to at the end of the mortgage term.
“In particular, anyone on a two-year fixed rate deal that was taken out just before the rate rise last November, the term will expire in just over 12 months and it’s inevitable they will be re-mortgaging onto a higher rate than they are on now.
“It’s best to find out now what that could mean financially, rather than leaving it until the mortgage term is about to end.”
Founder and CEO of Emoov.co.uk, Russell Quirk, commented:
“Mark Carney really is pulling the rug from beneath the nation’s aspiring and existing homeowners. The Government’s failure to build any meaningful level of housing stock is pushing prices ever higher and now the Bank of England has hit them with an increase in interest rates that will see mortgage payments increase, while resulting in a pitiful return on their savings.
Although today’s hike will be digestible for many, it should act as a warning shot for UK homebuyers and homeowners. Yes, the cost of borrowing remains low, but interest rates are now at their highest in a decade and could continue to snowball, putting many in a perilous position when they come to buy or remortgage.
Those looking to buy should be strongly advised against the temptation of borrowing beyond their means, as well as the importance of securing a fixed rate mortgage.”
Comment from founder and CEO of Yomdel, Andy Soloman:
“Although marginal, today’s news will still come as a kick in the teeth for UK businesses who will feel that the current direction of the purse string hierarchy is starting to turn against them.
In addition to the out of date business rates in place, a higher cost of borrowing not only increases their overheads but also dampens the purchasing appetite of the UK consumer. We’ve seen on numerous occasions that uncertainty around interest rates quickly percolates through to the public and the impact of this declining consumer confidence stretches right to the frontline.
After the last increase, business owners across multiple sectors expressed concerns over a brewing storm, as their cash flow suffered due to declining transactional revenue. There was also a notable spike in the number of people expressing concerns via live chat about the impact of the rise, particularly across the property sector from worried home buyers about their reduced mortgage eligibility.
The economy may be holding its own in the wake of political indecision, but a second consecutive increase may now start to rock the boat.
Our fiscal masters need to reconsider their use of interest rates as a blunt instrument used to manipulate the economy. A slight increase in inflation would be preferable to a continued, penal hike in interest rates. Helping rather than punishing UK business will be far better in the long run than this quick smash and grab via slapping a premium on money costs.”
Contact our expert mortgage broker for help and advice.
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