The news today that the Bank of England has increased the Interest Rate (you will often hear talk of the Bank of England Base Rate, if you are ever talking to mortgage advisers) has not come as a surprise, and in fact we had even predicted that it would be in November this year! The question is whether or not we should be worried.
There are always winners and losers when rates change, and these can loosely be called Savers and Borrowers; Savers win when rates rise, and suffer when rates go down; Borrowers can feel better when rates are low, but are potentially put at greater risk when rates start to go up.
Borrowers who have loans or mortgages that are linked directly to the Bank of England Base Rate, for example those on so-called 'Tracker Mortgages', are going to feel an immediate effect on their repayment amounts, which will go up. Borrowers with loans or mortgages that are on Variable Rates will have to wait and see, as the decision about whether to increase the interest rate on those loans lies with the lenders themselves. Borrowers on fixed rate deals will see no change at all of course, but perhaps will find that if they wish to remortgage after a fixed rate deal comes to its end that they will drop onto a higher Variable Rate than they expected, or may find it more expensive (potentially) to remortgage when the time comes; effectively, the cost of borrowing may be higher than the last time they did so.
Ultimately though I would urge people, for the time being, to remain calm enough in this case. The Interest Rate has risen by just one quarter of a percent - so, 25p for every £100 borrowed, which is a little over £20 per month for every £100,000's-worth of loan. I am not saying that is 'small potatoes', and it is not to dismiss individual concerns of what an extra £20-odd per month means to them - it is simply to put it into context for anyone who had not yet worked it out for themselves, in the hope (if anything) that it may ease fears of what the extra burden might mean.
It is also actually just a simple reversal of the 0.25% reduction to the Bank of England Base Interest Rate made last year, which dropped 0.25% from the 0.5% rate that it had been sitting at for nine years. That drop last year was a response to the Brexit Referendum Result and a move to restore confidence in an under-confident market place - never something, when it meant that the rate was only 0.25%, that was going to be sustained long term. And indeed, when talking about 'long term', let's remember how low a rate of 0.5%, as it is now, really is. The average Interest Rate since the Bank of England came to be some four centuries ago has been 4.7%, and in fact in the past 100 years the average has been over 6% - so 0.5% is remarkably low, still.
The real and understandable worry might be that rates continue to rise and potentially even return to the 6% levels that we had been used to until as recently as the past decade. Well, 'never say never', but the market economy is a different beast today, and as far as my own view goes I agree with a majority view at the moment that we may see a total of another 0.5% rise over the next two to two-and-a-half years, with another 0.25% rise at some point next year and another in either 2019 or 2020, but I suspect that there will not be any greater rise than that before the end of that year.
If you do have concerns about what it means to you, and what you should plan to do with either the mortgage that you currently have or what to do when your fixed rate comes to an end down the line, then I recommend speaking to a qualified mortgage adviser. Our own in-house mortgage service is one that is genuinely 'Whole of Market', and we can advise you on which mortgage will be the best for your individual circumstances and needs.
If this is of interest, please call us on 01865 435175.