Interest rate rise explained – How will your mortgage be affected?
Interest rates are one of the many things the Bank of England will change and adapt to suit or control the UK economy. The Bank of England uses interest rates to help control inflation. Rates have recently increased to 0.5% from 0.25%, the second rate rise in three months. This is largely driven by inflation.
What is inflation?
To put it simply, inflation is a term that is used to refer to periods of time where everyday items are increasing in cost.
Currently, the cost of living is on the rise due to rising prices in goods and demands, such as food, fuel, and energy. The Bank, subsequently, will help counterbalance the rise in inflation by increasing interest rates. The reason behind this, is that in theory, people will start to save more and spend less. Why? Interest rates rising means banks give you a little extra money in your savings. Borrowing money also becomes more expensive, meaning people will have less money in general to spend. Prices should hopefully go down quicker this way, thus shortening this current period of anxiety and stress that we are all experiencing. This makes sense, right? However, the downfall is that mortgages become a little more expensive depending on the type of mortgage you have – as some are interest rate based.
- On a Tracker mortgage, your monthly bill will increase £25 on average.
- On a standard variable rate mortgage, it will be an extra £15 per month on average.
Nearly two million people in the UK have one of these two types of mortgages.
If you are on a fixed deal that is ending soon, it might be worth looking into re-mortgaging to a longer fixed term deal. Goldman Sachs predict base rates will hit 1.25% by November 2022. Looking ahead in this current economic situation will help protect you of future interest rises which are being predicted.
It is certainly a worrying and uncertain period. However, there are things you can do to fight back against all the doom and gloom. If your worried about not being able to afford your monthly repayments, work on ways in which you can lower the amount you pay. This might mean remortgaging to a different deal or extending your mortgage.
Here at Prospect, we are here to chat about any concerns or questions you may have. We work for you and will never let you get into financial strain. Our goal is to take the stress away from you. We do not charge for advice. Please contact us for a no fee, no obligation evaluation.
Sources:
https://www.habito.com/hub/article/habitos-chief-financial-officer-on-another-interest-rate-rise
https://www.bbc.co.uk/news/business-12196322
https://www.bbc.co.uk/news/business-60197463
https://www.bbc.co.uk/news/business-57764601
