Unpacking the Implications of Interest Rate Hikes on Mortgage and Savings Accounts
What Interest Rate Rise Means for Mortgages and Savings
The Bank of England has recently raised the base rate by 0.25%. This decision is expected to impact millions across the UK, including those with a mortgage or savings account. While a hike in the rate has been forecasted for some time, the unexpected increase in inflation last month cemented the judgment.
Impact on Mortgages
For up to four million households, the rise in the base rate means higher monthly home loan repayments. While borrowers on fixed-term deals remain unaffected, variable-rate mortgage holders will immediately feel the effect. Changes in mortgage rates will reflect the base rate rise, but some lenders may choose to hike them by more.
Those with tracker mortgages will face higher payments immediately, usually set at a fixed rate above the base rate. According to UK Finance, approximately 640,000 home loan borrowers on tracker products face an average of £285 a year extra. Additionally, 750,000 standard variable rate customers will face £182 a year in additional costs.
People with mortgages must be aware of any potential increase in their monthly repayments. They should use online calculators to determine how much extra they will be expected to pay. It may be suitable for variable-rate loan borrowers to opt for a fix as the base rate could rise again this year. The average fixed rate mortgage cost is currently at its lowest in six months, with a typical two-year fixed rate mortgage at 5.32 percent and the average five-year fixed rate deal at 5 percent.
Impact on Savings
While mortgage holders may be worried about how the rise might affect them, savers may also be concerned about maximizing their cash. Banks and building societies will likely raise their interest rates on savings in the coming days and weeks; however, mortgage rates will increase more quickly.
For savers, a rate rise may mean higher interest on their savings accounts. However, the increase in interest may not offset the rising cost of living. As a result, savers must research the best savings accounts available to maximize their returns.
- The base rate now stands at 4.25 percent, its highest point since October 2008
- Variable-rate loan borrowers may want to consider fixing their rate
- The average fixed-rate mortgage cost is currently at its lowest in six months
The interest rate rise will impact both mortgage holders and savers. Those with variable-rate mortgages will see an immediate increase in mortgage repayments, while savers may see an increase in the interest earned on their accounts. Borrowers may want to consider fixing their mortgage rate as the base rate could rise again this year. Savers must research the best savings accounts available to maximize their returns.
The Bank of England’s decision to raise the base rate will affect millions across the UK, and it has important implications for both mortgages and savers. Borrowers may face higher monthly home loan repayments, while savers may see a slight increase in the interest they earn on their accounts. However, this increase in interest may not offset the rising cost of living.