First rate rise in a decade: what it means for you

The Daily Telegraph - Your Money - - FRONT PAGE -

Mil­lions of bor­row­ers pay more, start­ing now – but how will a higher Bank Rate af­fect other fi­nances, asks Amelia Mur­ray

Thurs­day’s 0.25 per­cent­age point in­crease in the Bank of Eng­land’s lead­ing Bank Rate – the first up­ward move since July 2007 – has had an im­me­di­ate ef­fect. Hun­dreds of thou­sands of bor­row­ers, in­clud­ing those with cer­tain types of loan from HSBC and York­shire and Cly­des­dale Banks, are al­ready pay­ing a higher mort­gage rate.

Mil­lions more will see rates tick up from De­cem­ber 1, which is when the ma­jor­ity of lenders plan to ap­ply the in­crease.

In other ar­eas of our per­sonal fi­nances – from over­drafts to credit cards, shares, sav­ings and pen­sions – there are also far-reach­ing con­se­quences, al­beit in some cases less im­me­di­ate.

Most bor­row­ers’ deals fall into one of two camps. They ei­ther have a fixed-rate deal, where they pay a known, fixed rate for a set pe­riod (such as two or five years). Or they have a “vari­able rate” deal where the in­ter­est rate can move at the dis­cre­tion of their lender.

If you are al­ready on a fixed rate, noth­ing will change un­til you reach the end of that fixed-rate term.

How­ever, if you are look­ing to get a new fixed-rate deal, you can ex­pect rates to climb. The quicker you act, the bet­ter the rate you are likely to ob­tain.

As with all mort­gages, the big­ger your de­posit (or the more eq­uity you have) the bet­ter the rate you are likely to ob­tain.

The av­er­age two-year fixed rate for some­one with a 5pc de­posit has in­creased from 4.16pc a month ago to 4.26pc today. Six months ago the rate was at 4.14pc, ac­cord­ing to data from per­sonal fi­nance web­site Money­facts.

By com­par­i­son, the av­er­age rate for some­one with a 40pc de­posit has only in­creased from 1.66pc to 1.69pc, and is still cheaper than six months ago. Read this ex­pla­na­tion of fixed rate loans, which in­cludes the cur­rent best buys.

Some­times called “Bank Rate track­ers” or “Base Rate track­ers”, the rate you pay moves up and down ex­actly in line with the Bank of Eng­land’s Bank Rate. So, for ex­am­ple, you may have a

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