After a period of intense speculation, it is refreshing to see that the Bank of England has finally acted to raise the Bank Base rate to 0.75% as widely expected.
I now expect the Bank of England to maintain this level going forward until we get a clearer picture where inflation and Brexit negotiations are concerned. There is a view that whilst this rise has been made on the back of stronger economic data, projected wage growth and inflation, another reason is so that there is room to cut rates again should a “no deal” Brexit become a reality.
Mortgage lenders, after they have stopped whooping and punching the air with delight, will be quick to increase their rates and there will be an immediate effect on those borrowers with variable or tracker rate mortgages. Whilst savers will also be cheering this decision, it may be that savings rates will change at a much slower pace if at all, as Banks & Building Societies look to claw back margins and boost profits further.
Although on the face of it a rise of just 0.25% is not a massive change, this would still be the highest rates have been since 2009 and with consumers used to a decade of low interest rates it may feel more pronounced than usual. On a £250,000 loan over 25 years, a 0.25% rise would add approximately £30.69 per month on a repayment mortgage and £52.08 on an interest-only basis. That’s £12.28 a month more for a repayment mortgage & £20.83 for an interest-only mortgage per £100,000 loan.
What does this mean for borrowers?
In terms of the current product offerings, we may not see much immediate change apart from tracker-rate products which will rise almost immediately. Fixed rate mortgage products may have already priced in such a rise and there is no doubt lenders will probably take the opportunity to charge more. The prevailing competitive pressures mean that lenders will still be keen to remain at the top of the Best Buy leagues.
For borrowers worried about the rate rise, the important thing is not to panic and to speak to your lender or a professional mortgage adviser straight away if you think there could be any issues. It may be that you can lock into a fixed rate sooner than you think (around 6 months before your rate expires). It may be worth breaking your current product early, paying the penalties and switching to a new rate dependent on your circumstances.