HOW THE INTEREST RATE RISE AFFECTS YOUR FINANCES
INTEREST rates were raised yesterday for the first time in a decade, leaving millions of homeowners facing more expensive mortgage payments.
The Bank of England lifted the cost of borrowing from 0.25 per cent to 0.5 per cent – reversing a cut made in the wake of last June’s Brexit vote.
At least four million households with variable rate mortgages will see their monthly payments rise as lenders immediately announced increases in their home loan charges.
About eight million younger mortgage payers face the first interest rate rise of their adult lives.
Barclays and Lloyds were among the High Street banks to raise payments as did HSBC, whose customers on a tracker mortgage with £ 100,000 balance would see a monthly increase of £ 12 per month and an increase of £ 24 for those with a £ 200,000 mortgage.
However, the rise is good news for savers after 10 years of measly returns on investments.
Gradual
The base interest rate has been at a record low since March 2009 and has not been increased since 2007.
After the Bank of England’s Monetary Police Committee announced its decision, Governor Mark Carney said any further interest rate rises are likely to be “gradual”.
The Bank’s quarterly inflation report signalled rates are likely to rise twice more over the next three years which could see rates hit one per cent by the end of 2020.
Some experts believe the next interest rate rise could take place in early 2018.
The decision by the Bank’s committee to raise the base rate is an attempt to rein in inflation. Prices have been outstripping wages as inflation hit three per cent, squeezing household incomes.
The Bank’s job is to keep inflation at two per cent.
The pound fell against the euro and the dollar ahead of the decision, which had been widely predicted, and fell further after the announcement, down 1.4 per cent against the dollar and 1.8 per cent against the euro. Guy Gittins, head of sales at estate agency Chestertons, said: “The property market has already demonstrated resilience in the face of the snap general election and EU vote, so this increase is unlikely to have a significant effect.”
Savers are set to benefit from the move as the Nationwide, Skipton, TSB and Yorkshire Building Society increased the interest earned on savings accounts.
Mike Regnier, chief executive at Yorkshire Building Society, said: “It has been a tough few years for savers so we are delighted to be able to pass on the full bank rate increase.”
Martin Lewis, of MoneySavingExpert. com said low interest rates have been “a plague” for many savers. Former pensions minister Sir Steve Webb, who is now director of policy at Royal London, said the interest rate rise “provides a modest boost for pensions”.
He added: “If today marks a turning point in interest rates this should signal a gradual recovery in annuity rates and could help to reduce deficits in company pension schemes.”