In early November of 2017, the Bank of England increased the base rate from 0.25% to 0.5%, the first increase in over 10 years. While this move was predicted for a number of months, it has still left many people wondering what it impact it will have on their finances. There will be some people hoping that it leads to improved saving rates but for many people, it is the impact on mortgage rates that is the most important factor.
In the short term people with a fixed rate mortgage can be confident that there is no real impact on them. After all, one of the key benefits of having a fixed rate mortgage is knowing that your monthly mortgage payment will stay the same even if interest rates rise (or fall). So the recent rise isn’t an immediate issue for fixed-rate holders but when their fixed rate period ends, some people may be in for a shock when they see their mortgage options.
Variable rate mortgage holders may need assistance
There are however many people who are not on a fixed rate mortgage. The BBC ran with figures stating that there are 8.1 million UK households with a mortgage and that 3.7 million of these, which equates to 46% of the market, are on a standard variable rate mortgage or a tracker rate mortgage. These are the mortgages which usually move alongside the official Bank of England rate and it is these mortgage holders who are being affected at the moment.
On the 2nd of November, the Guardian published an article stating that the average homeowner with a mortgage of £175,000 would see their monthly payments rise by £22. It is up to each individual or family to determine how much of an impact £22 extra a month will have on their finances but it could certainly see some households stretched. One of the most popular mortgage deals in the UK is the Nationwide base mortgage rate tracker and there are 500,000 people on this style of mortgage. The interest rate is going to rise from 2.25% to 2.5% and anyone who has a loan of £175,000 in place will see their monthly mortgage payment rise from £763 to £785.
According to UK Finance, the average balance that is outstanding in the UK is £89,000 and this level of mortgage will see payments rising by around £12 a month.
Further increases are likely
One other thing to bear in mind with this rise is that it is unlikely to be the last rise that occurs. The Governor of the Bank of England, Mark Carney, has said that there will likely be two further increases over the next three years. This means that households who don’t believe they are too badly affected at this point in time should make provisions for further changes before 2020. It may be that these changes will eventually place notable pressure on a property holder.
Of course, if people are feeling under financial pressure at this point in time, the thought of two further increases in the near future will be of great concern. It would be sensible for people in this position to review their finances and try to speak to professionals or experts who can help them in this matter.
At Geoffrey Matthew, we are always happy to offer guidance and advice. If there is a property matter that you want to discuss, get in touch and we’ll be happy to help as and best we can.