If you’ve just heard the news that the Bank of England has raised interest rates for the first time in over ten years – setting it at 0.5% - then you may be wondering what exactly this will mean for your money. While the direct impact will depend on a number of factors, including decisions made by lenders and your own personal situation, here are a few areas where we may expect to see an impact:
If your mortgage is on a variable rate then you can expect to see monthly payments increase. Martin Lewis of MoneySavingExpert.com has said that:
“Millions of people on variable mortgages will see a direct increase in cost of roughly £200 a year per £100,000 of outstanding mortgage. And most lenders will pass on the full 0.25% if not more. Lenders change their standard variable rates not only based on interest rate moves, but for their own competitive advantage. Do not be surprised if some lenders use this move as an opportunity to sneak rates up further maybe 0.3%.”*
For those of you with a fixed rate mortgage there won’t be any immediate changes - and it is difficult to predict how this news could affect individual mortgage rate changes at the end of a fixed term.
Nationwide, TSB and Yorkshire Building Society have all announced that their variable savings rates will now increase. Yorkshire Building Society’s chief executive Mike Regnier says: 'It has been a tough few years for savers, so we're delighted to be able to pass on the full bank rate increase. (…) Our decision today to pass on the full increase to variable rate account holders reflects our mutual ethos of putting our members first.’**
Other banks are likely to follow suit, although this is not guaranteed.
According to pension analyst Nathan Long, expectations of rising base rates have led to an increase in annuity rates. He has said that: “This has been feeding through into improved annuity rates; good news for anyone looking to buy a guaranteed income as they’re now being offered better terms.”***
You may also see a positive impact on your retirement savings, and Martin Lewis added that “Low interest rates have been a plague for many with savings, especially those who retired and expected to live off the interest.”
It’s worth remembering that the change, from 0.25% to 0.5%, is relatively small. However, it could still have a real financial impact – whether positive or negative – and may be an indication of future rises to come.
* The Express – ‘UK interest rates on mortgages: What will a rise mean for YOUR mortgage?’
** Daily Mail – ‘TSB and Yorkshire Building Society lead high street banks by hiking mortgage and saving rates within MINUTES of the Bank of England raising interest rates for the first time in a decade to 0.5%’
***The Express – ‘What the interest rise means for pensioners and savers’