August 3rd, 2018
As of Wednesday 2nd August 2018, the Bank of England have raised the base rate to the highest level since March 2009, from 0.5% to 0.75%. This is the official borrowing rate, so it’s what banks and other lenders are charged when they borrow money. A change in the base rate can affect what borrowers pay and what savers earn, so if you’re saving, a rise is generally positive news.
The increase follows a rise from November 2017 when the base rate moved from 0.25% to 0.5% and although it is said there will be further interest rate rises, Mark Carney, the Bank’s governor, said they will be “limited and gradual.” There are questions being posed about if the rise was premature before the UK have agreed a Brexit deal, but Mr. Carney said: “We can adjust when necessary.”
So, what does the rise mean for you?
How much will mortgages go up?
As a perspective buyer, the rise in interest rate will mean many mortgages will increase in cost. A ‘tracker’ mortgage tracks the base rate, so these mortgages will definitely rise with the 0.25% increase and standard variable rate mortgages are likely to go up too.
If you already have a mortgage and are on a tracker mortgage, you will definitely see an increase, it will depend on your lender when they make these changes, however, many rose immediately in November following the previous increase. If you’re on a standard variable rate mortgage, these are set by individual lenders, so you will need to check how the changes affect you.
If you’re on a fixed-term mortgage, you won’t see an instant change, although when your deal ends, you may pay more when you change.
Is the increase good news for savers?
In general, a rise in the base rate is positive for savers as they will earn more for saving. Although it is not guaranteed; the increase could see saving rates rise, but in November last year the impact of the rise was minimal.
The new rate can affect traditional saving accounts and ISAs, so check with your account provider. If you’re on a fixed-rate savings account, you will see no change as the rate the account was opened with is fixed.
Overall, you won’t see any dramatic changes in the coming months, but it is worth being aware of the rise and ensuring you are receiving the best interest rate if you’re saving.
If you are a prospective or first-time buyer looking for a new home and are a contractor, freelancer or self-employed, get in touch! We’d love to help you achieve your goal of owning your own home with a mortgage on the best rate available to you. Our friendly and professional team will provide you with all the advice you need!