As widely expected the Monetary Policy Committee voted this morning to raise the Bank of England’s base interest rate by 0.25% to 0.75%
This is only the second time there has been an interest rate rise in a decade and the first time the rate has been above 0.5% in that time which means many people could be in for a shock as they will have not experienced such an increase and will therefore need to adjust their current spending to accommodate any increases in their monthly repayments.
What will this mean to borrowers?
Many borrowers will have never experienced a rate rise so depending on the type of mortgage they have, they may need to adjust their current spending habits to overcome any increases in the monthly payments.
Fortunately for the majority of new borrowers over the last 2 years most new mortgages taken out have been for fixed rate products so those borrowers won’t see any change in their payments. Borrowers on variable rates are likely to soon see their repayments rise as lenders begin to increase their rates.
What does this mean for future mortgage rates?
As this rate rise was widely expected most lenders will have already factored this in to their pricing so consumers may not immediately see any changes to the rates on offer.
The market expects to see longer term fixed rate products grow in popularity as borrowers look to protect themselves against any future rate rises.
Commenting on the rise Jackie Bennett from industry trade body UK Finance said,
“Rates are still at an historic low and borrowers remain well-placed to get a good deal from the UK’s competitive mortgage market. And following an industry-wide agreement announced earlier this week, those borrowers on SVR or reversion rates who were previously unable to switch to a new product with their lender due to stricter affordability criteria now have the option to move to another product.”
