With the Bank of England announcing the increase in interest rates by 0.25%, to 0.75%, the impact on the 3.5 million people with variable or tracker mortgages will be massive. For example, on a £150,000 variable mortgage, a rise of 0.25% is likely to increase the annual cost by £224! With further rate rises predicted we look at how this might impact you.
So what does this mean for you?
1) You have an AIP, will the lender honour the interest rate offered? Unfortunately, this is unlikely. Unless you have paid the product fee and started your application the rate is not locked in.
2) Is another interest rate rise before the end of 2018 likely? It is unlikely that another rise will be due this year. Research from the BBC have forecasted that one, maybe two, similar rises will happen before 2020.
3) Will this improve the interest rate I receive on my savings and help me save a deposit? Very slightly! An article published by the Independent explain that The Bank of England raised rates by a quarter of a percent in November, but the average rate on an easy access account went up just 0.07 per cent between September 2017 and this week.
4) How will this effect a typical standard variable rate mortgage? A borrower with a £250,000 mortgage on a typical standard variable rate deal of 3.99% will see an increase of £400 extra per year.
5) Are rents likely to increase? Landlords who are on a tracker mortgage that matches any rise in the base rate will find that an extra 0.25% adds £12 a month to a £100,000 repayment mortgage and £25 on a £200,000 loan. These extra costs are likely to be added onto the tenants monthly rent when tenancies come up for renewal.
Alexandra Morris, the managing director at MakeUrMove has said that homeowners ‘will find the increase in their mortgage repayments unaffordable’, and goes on to say that ‘the government are currently sleepwalking into an ever deepening housing crisis and the Bank of England base rate rises are adding to the burden felt by many’. We may see a surge in the near future of people looking to purchase houses, and taking advantage of the lower interest rates before they are increased further.