Well we all new it was coming, but what now? What does the first interest rate rise for more than a decade mean for you?
Despite the fact that it’s a small increase from 0.25% to 0.5% it will have an immediate impact on UK households and businesses. On one hand it means higher costs for those with mortgages and other borrowings but on the other it’s better news for all those with savings.
Is it misery for Mortgages?
Mortgage rates will inevitably rise following the increase in base rate. The main group affected in the short term are those on a standard variable rate (currently average 4.6%), along with those who are on tracker mortgages, where rates are likely to raise this side of Christmas.
Although the scale of the rise is unlikely to push many people into hardship, as a 0.25% rise on a 25 year mortgage of £200,000 at a standard variable rate of 4.5 per cent means an extra payment of about £300 a year.
Is a Fixed-rate fantastic?
With The Bank of England announcing that further rate rises can be expected, brokers are anticipating a rush on fixed-rate deals of five years and over. Although over the last few months there have been a lot of fixed-rate product withdrawals and rate increases, as the banks anticipate the rush to a fixed-rate product.
Is it the right time to Remortgage?
Anyone looking to remortgage or move to a fixed rate can still access the historically low rates available in the market, with two year fixed-rate deals available at 1.09% or fixed for five years at 1.68% for those with a 40% deposit.
It is generally thought that borrowers should be encouraged by the comment accompanying the announcement by The Bank of England “The expectation at the moment is that the speed of future increase in rates is going to be relatively slower than we thought.”
Is it super for Savers?
For those living with near non-existent returns over the last few years, it would seem like welcome news. Although that depends upon whether the banks choose to pass this increase onto their customers. A move looking increasingly unlikely, as the link between base rate and savings rate appears to have been severed sometime ago. Following the announcement, the Nationwide says the “majority” of its savers will benefit from a rise, while Newcastle Building Society and Yorkshire Building Society pledged to pass on the full rate rise to all savers. So it’s not a clear rate rise for every saver in the UK. One to watch carefully!
Is it perfect for Pensions?
With annuity rates closely linked to movements in interest rates, according to experts, the rate rise is likely to be fed through resulting in higher income for pensioners.
Richard Eagling of Moneyfacts suggests “The interest rate rise is good news for those on the verge of retirement who may be looking to secure an income through an annuity, as it is likely to boost gilt yields, which underpin annuity rates.”
Is it time up for Transfer Offers?
The rise in the interest rate is more than likely to end the record high transfer offers currently available to members of defined benefit pension schemes. Head of Royal London, Sir Steve Webb says “The one group who may be concerned by today’s news are those planning to take a transfer from a final salary pension. Transfer values are likely to track down as interest rates rise. Anyone considering a transfer may wish to take impartial advice on the pros and cons of a transfer as a matter of urgency, as transfer values are unlikely to remain at today’s very high levels.”
So if you’ve been considering your potential transfer value now is the time to look at what the opportunity might be, before the rate rise causes an end to the current offers, that can be 30 or 40 times projected pension income.
Is it interesting for Investments?
The markets have already priced in the rate rise decision, so it is predicted that there will be little impact on stock prices in the short-term. With political uncertainties like Brexit still having an affect on company’s ability to make investment decisions.
Is the Rise repeatable?
It’s because the Bank of England is forecasting inflation falling below 3%, that many believe that further rate rises in 2018 are unlikely. On-going increases risk slowing or halting an already weak economy, currently experiencing the uncertainty of Brexit. So the feeling is that this rate rise is probably going to be an isolated incident, until Brexit is behind us and the economy is more stable.