As the dust settles on the monumental decision to increase interest rates, it was interesting to note that despite the enormity of the occasion the actual event itself passed with barely a whimper. The phones did not ring of the hook with worried consumers and it was very much business as usual.
Some elements of the press tried to make a big deal with headlines such as “Interest Rates double”, but the reality is for most people it was certainly not the end of the world.
So, what exactly happened, why was it a big deal and what affect will it have on your mortgage?
Well, the Monetary Policy Committee, (MPC) of The Bank of England, after months of speculation, finally announced that they were raising interest rates from their record low of 0.25%, with a 7-2 vote in favour of increasing by a further 0.25% to now stand at 0.5%.
This is the first time that the Bank have increased Base Rate since July 2007 and means that there is now a whole generation of borrowers, lenders, estate agents, regulators and officials who are experiencing such a rise for the first time.
After a number of false starts it could be argued that Bank of England Governor Mark Carney had no choice to act in order to maintain credibility after a change in their rhetoric due to inflation remaining stubbornly above target, low unemployment figures and recent GDP figures showing an improvement, albeit a slight one.
Although there have been recent warnings that it would be premature to increase rates now given the uncertainty of the resilience of the UK economy, the Bank of England may also have been keen to provide an extra buffer in case they need to cut rates again should the Brexit negotiations fail to provide an unsuitable outcome.
Whilst this is a monumental move, the watch words are slow and steady, with Carney stating that there could be two further quarter point rises over the next 3 years to get to 1% by 2020.
Perhaps Carney has actually played the whole thing rather well. It was well signposted; Swap rates, (the cost of funds upon which lenders base their fixed rate pricing decisions), had already increased well in advance and lenders had already priced the rise in.
Whilst savers will rejoice at this decision, borrowers on a typical variable rate with a £250,000 mortgage could see their monthly payments increase by around £32 per month on a repayment basis or £52 per month interest only.
The actual effect saw most lenders put their rates up, but only by around 0.2 to 0.3% in many cases which still meant 5 year fixed rates, for example, at 1.79% which is still remarkably low.
Whilst those on variable or tracker rate products will experience this rise almost immediately, with an increased number of mortgages now arranged on a fixed rate basis, the impact will not be as intense as it could be.
The bigger issue is with people with large levels of unsecured debts, credit cards and loans which is worrying regulators and savers; who finally thought they would see a modicum of cheer only to find some banks have not even passed on the full rise to them.
What is also tempering things is the sheer level of competitive pressure that exists in the mortgage market, which looks set to continue for the foreseeable future and will keep rates keen.
We have already seen a number of new lenders on the scene including Sainsbury’s Bank and M&S coming in early next year to continue to put pressure on established lenders and recent new, tech-minded lenders such as Atom Bank.
For any borrower still on a variable rate, coming to the end of their current product term or looking to buy in the near future it makes sense to review your options sooner rather than later.
Overall mortgage and property wise it is still a very competitive market, with more activity from those looking to remortgage who are determined not to miss out on low rates any more and those looking to buy who think now is a great time from an affordability point of view.
At present, 2-year fixes are available at 1.25%, (4.22% APRC) and 5-year fixes from 1.74%, (3.01% APRC) whilst variable tracker rates are around from 1.24%, (3.34% APRC).
Those looking at a Buy-To-Let can still obtain products from just 1.32%, (3.87% APRC) for a 2-year fix.