BREAKING: The Bank of England has voted to raise UK interest rates, for the first time in over a decade.
Bank Of England’s Decision
Interest rates are going up to 0.5%, from 0.25%.
The Monetary Policy Committee has voted 7-2 to increase Bank Rate to 0.50%. The committee voted unanimously to continue with the programmes of corporate bond purchases and UK government bond purchases. The Committee says it only expects interest rates to rise gradually over the next three years.
What Does The Interest Rate Rise Mean For you?
The Bank of England base rate of 0.25% has been at a historic low for 10 years and bearing in mind the normal level of interest rates previously has been nearer 5%. The economy has continued to improve and inflationary pressures mean the Bank of England raised interest rates to 0.5%.
The increase in the base rate means higher monthly bills for millions of people with variable rate and base rate tracker mortgages.
Those on fixed-rate mortgage deals would be protected from any increase, but only until the end of their deal’s fixed term.
What this means for you is, now is the time to fix, ahead of everyone else looking to do so, as the best deals will quickly disappear as borrower’s rush to fix their mortgages.
Should I fix now?
The Bank of England base rate has been historically low for so long, many borrowers have not known any different, so any rise in rates could have a dramatic effect on the disposable income they have or their ability to keep paying the mortgage.
Once the fixed period expires then the rate converts to the lenders Standard Variable Rate or you can decide to fix for a further period of time.
If you currently pay the Standard Variable Rate, you are more vulnerable to interest rate rises, as lenders will raise the rate but not by a fixed amount so any increase could be by as much as 2%. You should check the terms and conditions of your current mortgage to find out what that increase is likely to be.
The Bank of England currently has a new base rate at of 0.5%. If you have a Tracker mortgage then these will rise as they are linked directly to the Bank of England base rate. Tracker mortgages will move in step with the base rate as detailed in your mortgage paperwork (e.g base rate plus 1% above).
How long should you fix your mortgage for?
When considering how long to fix your mortgage for you need to consider what your future plans are likely to be and what the interest rate is for any given period of time. When you fix the rate of your mortgage you will have higher exit fees and penalties, therefore if you wish to move property or pay off the mortgage either in part or full it will cost more to do so. Rates will also vary according to how the borrower perceives the economy is performing and therefore where interest rates are likely to be in the future. A 5 year rate may not be as low as a 2 year rate, it is therefore important to seek expert advice before making any changes. The other factor to take into account is the loan to value you will require when you re-mortgage your home. As with all mortgages the lower the amount you need to borrow compared to the value of your home the more competitive the rate will be.
When deciding if a fix rate mortgage is right for you, take into account what your current mortgage rate is and any fees for exiting your mortgage compared to a fixed rate deal, how likely it is you will either want to move or pay your mortgage off and when.