How the Interest Rate Rise Affects You
In this blog we take a brief look at how the recent interest rate rise will affect you. The Bank of England recently raised the national rate of interest from 0.25% to 0.5%, in response to some of the economic challenges the country is currently facing. This can be seen as a landmark decision because this is the first time rates have risen since the global financial crisis of 2007/2008, where rates dropped from around 5% to 0.5%, and further reduced to just 0.25% in 2016.
Interest rates are also a significant factor in personal finances, impacting the amounts we repay on loans and mortgages. They also affect our savings and the way our money accumulates interest when it is stored in a bank account. Mortgages are the most pressing factor for some people, as the cost of variable rate mortgages is affected by interest rates. The greater the amount of a mortgage, the greater the impact in terms of how much extra (or less when the rate is decreased) will become payable each month.
The Bank of England is confident that their survey results show that most families will be able to cope with the increase, and have also suggested that the rate of interest may climb all the way back to 1% by the end of 2018.
If you’re looking for an unsecured personal loan following the rise you may have to pay more for it, and if you’re still paying one off the cost to do so may increase. It’s worth noting that at George Banco we have no plans to increase our rates for the time being.
A fixed rate mortgage is pretty much insulated from interest rates rising and falling for the duration of the fixed period, However, some fixed rate deals only last for a two year period, meaning once the mortgage comes up for renegotiation it is likely to cost more due to this increase in interest rates.
For variable rate mortgages, or ‘tracker’ mortgages, repayment figures will be affected quickly, with many lenders monthly repayment requirement being adjusted as soon as the changes were announced. However, there has been greater pressure put on banks in recent years to prevent them from lending to people who might not be able to afford their mortgage in the event of an interest rate rise.
Savers will not necessarily see any changes involving interest rates, but if your savings are in an account that is subject to interest, deposits will be subject to interest rises too. Banks may avoid transferring the interest rate rise to consumers at this stage.