The Bank of England have just announced that the base rate is set to rise from 0.25% to 0.5%. This is the first rise in over a decade and likely to signal the beginning of the end of ultra-low interest rates.
The 0.25% rise in Bank of England base rate to 0.5% may be small, but it marks the first rise in borrowing costs for a decade. Many mortgages will rise in cost, but savers will be looking forwards to better returns.
James Roberts, chief economist at Knight Frank, said: “An increase in the base rate is often viewed with trepidation by the property industry, but this long expected move is unlikely to have a negative impact.”
“For commercial property, it should be remembered that debt has played far less of a role in the market in recent years than was the case prior to the financial crisis. Commercial property yields are not strongly correlated to interest rates, so I do not see a small rate increase having much of an impact. Indeed, in some markets the re-emergence of rental growth, such as for offices in districts popular with technology firms, should keep investor's active.
David Hollingworth of L&C Mortgages comments on today’s interest rate rise from The Bank of England: “Although the rate rise only takes Base Rate back to the same level as before the post-referendum cut in August 2016, it’s significant as will represent the first ever rate rise for a generation of mortgage borrowers.
Those on variable rates are of course the most vulnerable to a rate rise and they should expect to see their monthly payments lift. That could put a further squeeze on monthly household budgeting which has felt the pinch of higher inflation feeding through.
Lenders passed on the rate cut last year and so it will be of little surprise to see their variable rates edge back up. An increase of 0.25% on a £150,000 standard variable mortgage at 4.5% over 25 years, would see payments rise by more than £20 per month.
Worrying about what a lender will do with their standard variable rate can be something of a red herring considering how competitive mortgage rates are for those that shop around. In our experience at least 90% of borrowers (and currently more) have been fixing in recent years.
Those that have so far failed to take advantage of the record low fixed deals will find that rates have already edged up as expectation of a rate rise increased. Nonetheless borrowers can make big savings over SVR and also protect against any future rate rises”.