It was announced today that the Monetary Policy Committee voted unanimously to raise the base rate to 0.75% per cent from 0.5% per cent.
This is the second rate rise in a decade, with this one rising above the emergency level introduced straight after the financial crisis in 2008.
The key factors that have played a crucial role in the latest rate rise are expectations of a strengthening economy, more consumer spending and wage rises.
— Bank of England (@bankofengland) August 2, 2018
The Bank’s monetary policy committee judged that the economy could withstand higher rates due to these influencing factors. However, their main priority is to keep the rising cost of living – known as inflation – under control.
Although the Bank’s governor, Mark Carney, had suggested that higher interest rates would be on their way – many are still unsure how the rise will directly affect them.
If you belong to the 70% of people who are on a long-term fixed rate, the increase will have zero impact on you. However, the 3.7million borrowers who are on variable and tracker mortgages could see their monthly bills go up.
If you are on a tracker mortgage that matches any rise in the base rate, then an extra 0.25% adds £12 a month to a £100,000 repayment mortgage and £25 on a £200,000 loan.
For the 400,000 households on Nationwide’s base mortgage rate, their monthly bill will rise from £449 to £461 (on a loan size of £100,000) and from £897 to £922 on a £200,000 loan.
One of the striking new developments in the mortgage market is the sudden availability of 10-year fixes at interest rates that are only marginally above the two- or five-year fixes taken out by most households.
Given the rising interest rate environment, longer-term fixes are likely to be much more popular this year.
Our head of financial services, Stephen Ridgway, provides his insight on the recent rate rise and whether fixing is the right thing to do.
“As predicted, the Bank of England increased the base rate by 0.25%, setting it at its highest since February 2009.”
“However, there is no need to panic. We are still in a period of low interest rates with mortgage borrowing still extremely competitive. Fixed interest rate mortgages are widely available to counter any future interest rate rises.”
“My advice would be, if you are on a variable rate or your current fixed rate is due to expire soon, make an appointment to review your mortgage. We have a team of expert advisors here at Edward Mellor who can review your mortgage to make sure it is still the most suitable for you.”
If you have been affected by the new rate rise or want to have certainty over your future mortgage payments and need some, free friendly advice from our team of financial services experts please get in touch on 0161 443 4548 or fill in the form below