The Bank of England base rate change, and how it affects business and home owners

Industry News2nd November 20170 CommentsLeyton Jeffs


The Bank of England has just announced an increase in base rate which will be the first increase in over ten years.

An increase of 0.25% doesn’t appear too overwhelming, however, raising from the current 0.25% to 0.5% could indeed have a major impact on the economy as we know it, especially if it is just the first raise of many!

Homeowners will be the first to take the hit with an almost immediate rise in mortgage rates, and for those with future property ladder plans, the upward shift will not make it easy.

Personal loans, credit cards and even overdrafts are all set to suffer the interest rate rise which in turn will cause a wider scale effect on general household finances.

Mortgages

If you are on a fixed rate deal then you needn’t worry just yet. If, however you are on the search for a fixed rate deal, then it would be wise to act fast as rates are expected to climb for future buyers.

For those with tracker/variable rate mortgage deals, an increase is on the cards. The rise is likely to increase your mortgage rate but this is not guaranteed – most lenders operate on their own “base rate” and it doesn’t automatically track the Bank of England rate, though it is likely too.

A question many will be pondering is ‘How much will my mortgage go up?’ If you are the average homebuyer with the typical mortgage in Britain of £175,000, the answer would be around £22 a month.

The 500,000 borrowers on one of the most popular deals, Nationwide’s base mortgage rate tracker, will see their interest rise from 2.25% to 2.5%, taking the monthly bill from £763 to £785 on a £175,000 loan.

Savings

The average easy-access savings account is currently paying 0.14% in annual interest, according to the Bank of England, so someone with £10,000 worth of savings is earning £14 a year. If the rate rise is fully passed on, they would earn an extra £25 a year, making £39 in total.

A saver with £10,000 in a typical cash Individual Savings Account (ISA) would see their income rise from £30 a year to £55.

Impact on business

Similar to consumers, businesses will see a small increase in the cost of borrowing money whilst earning slightly more when saving.

As the base costs of borrowing increase, it is even more important that the variable element of interest that a lender charges above base is well negotiated and kept to a minimum – something that we can definitely help with!

Summary

Whilst an increase of 0.25% on the cost of borrowing isn’t going to see a dramatic change overnight, it is definitely something to keep an eye on over the coming months to see if we are close to further increases which will mean that new borrowing and existing borrowing on variable rates becomes again more expensive.


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