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What do the interest rate rises mean to me?

  22 Nov 2017

While it has been discussed for a lengthy period of time, it was only at the start of November that the Bank of England announced that they were going to increase their base rate. This has launched a thousand articles and a million opinions but it is important to remember that not every opinion will match your own because different people will be affected by these changes in different ways. If you are saying “what do the interest rate rises mean to me?”, it is time to cut through the noise and think about your own situation.

It would be wrong for any publication to say that the rise in interest rates is a good thing or a bad thing because the rise will be positive for some people and bad news for others. If you are one of the 45 million savers in the United Kingdom, there is a very good chance that you will see a greater level of return from your investment. This is good news for a lot of people and some financial institutions have already announced an increase in their own savings rates.

Of course, when there are winners, there are also losers, or people who are not so well off, and the people who are most concerned about the rise in interest rates are those people with a variable rate mortgage.

Many UK homeowners have a variable rate mortgage

It is believed that there are over four million households in the country with a variable rate mortgage and the rise in interest rates mean that the monthly payment for the mortgage is set to rise. This is obviously a bad thing for many people as it means they have to find more money to make their monthly payment or they’ll find that they have less disposable income after they have paid their mortgage.

In general terms, the impact on variable rate mortgage holders will hopefully not be too bad. In figures released by UK Finance, the average household owes just less than £90,000 in their mortgage and this will result in an increase of around £11 to £12 per month in mortgage payments. It is important to be aware of your own finances and how this will impact on you. While no one wants to pay more, there will be people who can manage this increase without too much concern while there will be people who have to seriously examine the impact it has on their monthly budget.

A quick run through of figures, again taken from UK Finance, suggests that people who have an:

  • Outstanding balance of £50,000 with a monthly payment of £225 will pay £6 more a month
  • Outstanding balance of £100,000 with a monthly payment of £450 will pay £13 more a month
  • Outstanding balance of £150,000 with a monthly payment of £675 will pay £19 more a month
  • Outstanding balance of £200,000 with a monthly payment of £900 will pay £25 more a month
  • Outstanding balance of £250,000 with a monthly payment of £1,125 will pay £32 more a month
  • Outstanding balance of £300,000 with a monthly payment of £1,350 will pay £39 more a month

These figures are a good outline for people and it is important to be aware of how much extra money you will need a month to cover the increase in mortgage payment. When you have a variable rate mortgage, there is always the risk that the amount of money you need to pay each month will rise, and although interest rates have been low and constant for a good period of time now, a change was always likely to come at some point.

People with a fixed rate mortgage shouldn’t take the situation for granted

People who have a fixed rate mortgage rate have no immediate concerns as their agreement ensures their monthly amount is fixed. Of course, if a fixed rate mortgage is concluding soon, the holder should be aware of the interest rate and what the new rate may mean to them. It can be easy to take things for granted when there is no immediate change but given the serious nature of mortgages, it is important that people are aware of what is happening in the industry and how it may affect them.

While this rise has been predicted for some time, not everyone is in agreement that it is a good thing for the economy. The experts who believe that keeping inflation down is important believe that the rise in interest rates is a good thing but for specialists who would prefer to maintain economic growth, there are concerns that the rise will stifle this growth.

While there is nothing to suggest that inflation will not reach the 5% levels that it did back in 2012, there is obviously some concern that this increase is the start of a range of small increases that will leave people paying much more over time. No matter how you feel you are affected by this minor change in November 2017, it wouldn’t be a bad idea to reassess your finances to try and give yourself as much flexibility as possible in cases the increases occur on a more regular basis.

At Jezzards, we know that the rise in interest rates will leave many people feeling concerned or unsure about their future plans. If you would like to discuss mortgage matters or you need advice about what your next step should be, come and speak to us as we are more than happy to help.


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