What does the Bank’s interest rate hike mean for people’s finances?
The Bank of England has votedto hike interest rates by 0.5 percentage points to 2.25% — the seventh rise since last December. So what does this mean for your finances?
For the 2.2 million people on a variable rate mortgage, the rise is very bad news, leaving many having to pay hundreds of pounds extra a year. About half of them are either on a tracker directly linked to the Bank base rate or a discounted-rate deal, according to recent Financial Conduct Authority data. The other half are on their lender’s standard variable rate (SVR).
A tracker mortgage directly follows the base rate – the small print of your mortgage will tell you how quickly the rise will be passed on, but in the next few weeks your payments will almost certainly go up, reflecting the full base-rate rise. On a tracker previously at 3%, the interest rate would rise to 3.5%, adding £38 a month to a £150,000 repayment mortgage with 20 years remaining. Increase that £150,000 to £500,000 and another £128 a month will be needed.
With SVRs, things are less straightforward: these can change at the lender’s discretion, but most will probably go up. However, banks and building societies are likely to come under pressure to perhaps pass on only some of the latest increase to SVR borrowers. Some lenders may take some time to declare their intentions.
However, according to the FCA, about 6.3 million UK mortgages (74% of the total) are on fixed-rate mortgages, and so for the time being are insulated from the latest rise.
Unfortunately for those on fixed rates, about half are due to expire within the next two years. For those looking for a new mortgage now, the Bank’s decision means higher borrowing costs.
The price of new fixed-rate mortgages had already been shooting up
Read more on theguardian.com
