The Bank of England is almost certainly going to raise Bank Rate at midday today. Assuming it does, which means it probably now won't (!), what are the ramifications for mortgage holders and savers? Just a few lines will do on either.
13 responses from the Newspage community
"People locked into a fixed rate will be protected from any rate rises but those on base rate trackers or, worse still, on a lender's standard variable rate will likely see their monthly payments rise. Once again I find myself repeating the same old tune: the best time to remortgage was six months ago and the second-best time is now. Don't dither and delay any longer, speak to a broker and get your mortgage sorted ASAP."
"This latest interest rate increase will pile on more misery for homeowners, or at least those who are on standard variable rates, as their mortgage costs increase. Coupled with the proposed national insurance increase and forthcoming energy price rises, there will be a real squeeze on income during 2022."
"Savers will be rubbing their hands with glee but there's still a long road of rate rises ahead. Having accepted dismal returns for years during this period of low interest rates, those with cash in the bank may finally start to see a return on their money. But where there are winners, there are losers too. Whilst the rich get richer, mortgage borrowers will be less excited about the rising rates as this will mean higher costs, if not immediately, then certainly at the end of their current fixed rate deal."
"Anyone foolish enough to be sat on their bank's standard variable rate is likely to see the amount of money they're been chucking down the drain each month increase, which is especially silly with utility bills about to go through the roof. My advice is that anyone whose mortgage deal has ended, or whose deal is due to end before the end of September, now needs to get on Google, search for mortgage brokers near them, and pick up the phone to whoever has the best reviews."
"Though rates have risen, we may find that some lenders have money left at cheaper rates and so can hold rates down for longer than some of their competitors, but these funds tend to be exhausted pretty quickly. With inflation remaining stubbornly high, I think we can expect mortgage interest rates to be creeping up every few months this year."
"Despite very few lenders lowering their interest rates when the base rate went down in 2020, lots will likely increase interest rates with this change. The result will mean higher monthly payments for those on standard variable rates. It's important to remember, however, that while the base rate is rising, it is still exceptionally low. There are still very competitive mortgage rates out there."
If you're mortgage fixed rate period is finishing soon, arrange a new fix as early as possible. You might be able to steal a march on further interest rate rises. Consider a longer term deal if you don't think you'll be moving any time soon and so won't be affected by Early Repayment Charges. The era of insanely cheap credit is probably coming to an end though. Finally, some good news for savers after years of dismal returns. If inflation continues to soar, who knows where rates could be by the end of the year.
"First up, don't panic. Immediately, everyone with a mortgage begins to panic, but if you are on a fixed rate you have no need to, as your rate remains the same whatever happens to interest rates. Now if you are on the lender's standard variable rate or your fixed rate is coming to an end, now is the time to speak to a local broker."
The BOE base rate rise will not mean much to those borrowers tied into fixed rates but those on variable rates or tracker products will feel it for savers lenders rarely pass any increases on right away so if you have a mortgage and are 6 months away of your current deal ending don't bury your head in the sand speak to a professional.
"If you are borrowing money then you don't want rates to go up. If you are saving money then you are desperate for rates to go up. Either way, interest rates need to rise to ensure inflation does not spiral out of control."
Given the runaway inflation figures, it was no surprise that the Bank of England felt the need to increase Bank Base rate once more. The Bank of England is stuck between a rock and hard place and has to come out fighting in order to at least try to temper inflationary pressures. This could be the first of a few rises this year, but the worry is that this will have minimal effect, because of the nature of this cost-push inflation. Whilst it will not have too much effect on the majority of mortgage borrowers who have long since run to the sanctuary of fixed rates, it will continue to drive prospective buyers and those looking to remortgage to act sooner rather than later as they flock to lock into some of the lowest rates before they inevitably increase further. Added to the increase in energy bills we are all facing it may seem that peoples borrowing power starts to wain slightly as lenders take into account these extra costs. That said, we are still in a low interest rate environment right now with lenders remain eager to lend, and this competitive pressure will ensure that the mortgage market remains very much open for business and affordable to the majority of borrowers. What we do have to be wary of, are all those borrowers who are unable to move as Mortgage Prisoners, or trapped with properties that need cladding remediation works done. They will be hoping that help comes soon so they are not left at the mercy of increasing rates in the future.
We have already seen banks increase their rates over the past couple of days in anticipation that the base rate will change. It would be prudent to fix your mortgage if you are on a tracker or variable rate at the moment as it is likely they will continue to increase. This is even more important if you have a large mortgage. For example a 0.50% increase at a loan of £1m would be an extra £5,000 of interest per annum.
A rise in interest rates will mean very little for savers. Even if the banks pass on the full 0.25% increase, it'll hardly be noticeable for most people and let's not forget, it's still way below the current rate of inflation. That means your money still loses its spending power by sitting in the bank. Borrowers, on the other hand, will notice the rate increase, unless already in a fixed rate deal. For those looking to re-mortgage, fixed rate deals will become more attractive as mitigation against further rises in base rate.