On Thursday 2nd November, the Bank of England (BOE) chose to raise the base rate from 0.25% to 0.5% – the first rate rise since July 2007.
This was in response to the current inflation figure which sits at 3%, 1% higher than the BOE’s target of 2%.
So what does this mean for you? We asked our partner, Springtide Capital, for their thoughts.
What This Means for Borrowers
The average homebuyer will see their mortgage increase by £22 a month on a typical mortgage of £175,000. Those on a base rate tracker, for instance, a 2.25% tracker over 30 years, would now be on a 2.5% rate, taking their monthly repayment from £763 to £785.
A first-time buyer who takes out a new tracker mortgage on the same rates as above, over the same period, would pay an extra £12 a month per £100,000 borrowed, according to the Guardian’s latest review.
The rate rise will not impact everyone immediately though, as those on fixed rates mortgages will only have to factor in an increase when they re-mortgage or take out a new mortgage. However, many people are on relatively short fixed-rate deals, so their next one will be more expensive as it takes into account last week’s rate rise. For those on base rate trackers, or coming to the end of their term, should look at re-mortgaging as lenders increase their Standard Variable Rates (SVR), some of which will now be 4.74%.
Analysis from the Resolution Foundation has said that in reality only 11% of UK households are immediately affected by the rate rise, compared with 19% a decade ago as more people are on fixed-rate deals.
Banks have been stress testing new borrowers for interest rate rises up to 3% as part of their affordability checks for some time, so unless circumstances have changed, this increase should be affordable, although not desirable. It is also predicted that there will not be another immediate increase, as the Monetary Policy Committee (MPC), who vote for or against these rate rises, will wait to see what impact this rise has had.
Taking Advantage of Rates
We are most likely seeing an end to super-cheap mortgages, which means that now is a perfect time to secure a fixed-rate deal; most lenders will have a tranche of funds set aside for cheaper lending, but it won’t last forever.
For savers, this rate rise will be long overdue, having seen poor rates of return for many years. However, banks may be sluggish in passing on the increase, so it might be a good idea to look at new savings accounts with more competitive savings rates.
Henry Knight, Managing Director, Springtide Capital commented: “Although not ideal, this rate rise is a strategic move from the BOE to control inflation, and I do not think there will be another one in the next few months. These historically low rates won’t be around for long, so borrowers need to act quickly to try and secure what is left of bank’s tranches.”
Contact your local office for advice regarding selling or buying your property.