BoE increases the base rate to 0.25%
The Bank of England just increased Base Rate to 0.25%
While many expected the Bank of England to maintain interest rates at 0.10% in light of a recent Omicron variant of Covid, the Monetary Policy Committee voted 8-1 to raise rates to 0.25%, up from 0.10%.
Ricky Dosanjh, Managing Director of Reeds Financial, stated, 'A 0.15% increase is not much, but is this a precursor to future increases and a way of encouraging people to suppress in their spending? In most peoples case this will be an increase of £17 per month.'
With inflation currently exceeding 5% The BOE's decision to raise this rate ahead of Christmas and in the face of another potential economic shock associated with the Covid pandemic demonstrates how seriously they are taking the recent increase in inflation.
What does this mean for you?
Even with today's rate hike, households should anticipate that their costs will continue to rise in the near future. The small increase in the base rate will have a limited effect on demand and may take time to filter through to consumer behaviour.
Today's rate hike signals that we should anticipate a period of belt-tightening and less cheap credit form here on out.
Will my mortgage repayments go up a lot?
This is likely to increase if you have a variable rate mortgage – typically a tracker that tracks the base rate or a loan at a lender's standard variable rate. With a tracker mortgage, your payments will likely increase in lockstep with the base rate increase, and the additional cost will fully reflect the increase.
It's less straightforward with a standard variable rate – these can change at the lender's discretion, but banks and building societies are able to pass on the entire increase, so you should anticipate a rise.
"Borrowers on their standard variable rate (SVR) may see their rate increase within a month," said Rachel Springall, finance expert at Moneyfacts.co.uk.
"A 0.15% increase in the average SVR, which is currently 4.4%, would add approximately £408 to monthly repayments over two years."
With The majority of borrowers, however, are on fixed-rate mortgages. Interest rates have been so low in recent years that we have advised the majority of our clients to lock in the low fixed rate for a specified period, and according to The Guardian Money news, since 2019, 96% of new mortgages have been taken on a fixed rate, which is unaffected.
Homeowners are encouraged to check their current mortgage rate and consider switching to a more affordable deal while they still exist.
If you are currently paying your lender's standard variable rate, or wnat to lock in a new rate for a longer term then now is an excellent time to consider switching lenders. Why pay more than necessary for your mortgage? Reeds Financial is offers free mortgage reviews.
If you are currently on a tracker rate and are concerned about future rate increases, let's discuss your remortgage options to determine whether you would feel more secure fixing your mortgage during this uncertain period.
Your home or property may be repossessed if you do not keep up repayments on your mortgage. The information contained in this website is subject to UK regulatory regime and is therefore intended for consumers based in the UK. Reeds Financial is a trading style of Reeds Financial Limited which is an appointed representative of The Right Mortgage Ltd, which is authorised and regulated by the Financial Conduct Authority. Reeds Financial Limited is registered in England and Wales no: 12656133. Registered address: Reeds Financial Limited, Innovation Centre Medway, Maidstone Road, Chatham, Kent, ME5 9FD. A fee may be charged for mortgage advice. The exact amount will depend on your circumstances.
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