What does the Bank of England interest rate rise mean for you?
The Bank of England has voted to raise interest rates by 0.5 percentage points to 1.75% as the UK battles to prevent inflation running out of control. We look at what that means for your finances.
It depends what type of deal you are on. Most borrowers are on fixed-rate mortgages, and so for the time being at least they are insulated from the impact of the latest interest rate rise.
However, the banking body UK Finance says about 21% of households are on a variable rate – either a tracker mortgage, where the rate you pay is explicitly linked to the Bank base rate, or their lender’s standard variable rate (SVR).
About 800,000 borrowers have a tracker mortgage, while approximately 1.1 million are on an SVR.
A tracker mortgage will directly follow the base rate – the small print of your mortgage will tell you how quickly the rise will be passed on, but next month your payments are likely to go up, and the extra cost will fully reflect the base rate rise.
On a tracker at 2.5%, the interest rate would rise to 3%, adding £38 a month to a £150,000 repayment mortgage with 20 years remaining.
With SVRs, things are less straightforward: these can change at the lender’s discretion, but many people will probably see an increase in their monthly costs. However, banks and building societies are likely to come under pressure to either pass on none of the latest increase, or only a proportion of it, to their SVR borrowers. Some lenders may not immediately declare their intentions, or may say that any increase won’t take effect for perhaps a few weeks or more.
Some with fixed-rate deals that are due to end later this year or early next are likely to be very worried – mainly because the price of new fixed-rate mortgages has shot up during the
Read more on theguardian.com
