Low interest rates are coming to an end as we speak. Bank of England governor, Mark Carney, has hinted to the UK that the base rate – which is currently sitting at 0.5% – is set to rise in the upcoming months. The rate rise may affect a wide range of areas such as mortgages, borrowing, pensions and savings. The rise in interest may affect millions of low-income families who depend on cheap credit.
Since the Brexit vote, the value of the pound has dropped, causing inflation to surge. Instead of trying to solve the issue, the Bank of England have decided to up the rates to keep inflation ‘steady’. Due to these changes, banks across the UK have been forced to bring their rates up, which has caused a stir amongst UK citizens. A rise in rates can affect the cost of borrowing, resulting in higher monthly repayments.
WHO SETS THE RATE?
If you watch the news, you may have heard about the rates going up. This is due to the Monitory Policy Committee – also known as the MPC. They are a committee for the Bank of England, who are responsible for setting the rate which other banks will borrow from the Bank of England.
Truth be told, banks are not obliged to follow the Bank of England’s decisions on interest rates. However, the change in rates can heavily influence other aspects such as the cost of borrowing, and the interest you receive on funds.
The Bank of England raised the interest rate back in November for the first time in almost a decade.
The question now is, how long until the next rate rise?
The Inflation Report predicts that rates will increase to 0.7% by the end of this year – which puts the UK in line for two rate rises in 2018.
But, it doesn’t end there. They predict that rates will increase up to 1% in 2019 and could potentially rise to 2% years after.
HOW WILL YOU BE AFFECTED?
The change in interest rates can affect the cost of borrowing, if you’re a homeowner, your monthly mortgage repayments may be affected depending on the type of mortgage deal you have and when it ends.
Those who have a variable rate tracker mortgage will most definitely see an increase to their monthly repayments, which is why experts are recommending that borrowers switch to a fixed rate mortgage. For those who have a standard variable rate mortgage, there’s a good chance you will see an increase in your repayments when interest rates finally rise.
Fixed rate mortgage borrowers will likely see a change in repayments when their current deal comes to an end. Also, the rise in interest rates may cause re-mortgaging to become costly.
Keep in mind that this will only happen if your lender decides to follow through with the Bank of England’s decision to increase rates.
HOW TO PREPARE FOR A RATE RISE
Getting in touch with your mortgage provider and going through your paperwork will help you prepare for any changes. Once you figure out what mortgage you have, you will be able to figure out to what extent the interest rates will have on your finances.
If you find that the interest rates will indeed affect your finances, then you will most likely experience an increase in your mortgage repayments.
Work out your monthly income, then deduct your household bills, utilities, car payments and other expenses. This will allow you to see how much you have left to pay for your mortgage. You can also identify areas that you can cut back on to save money.
Also consider improving your credit score. By doing this, you will grow your chances of finding a better mortgage deal when the rates increase.
WHAT TO DO NEXT
If your mortgage deal is coming to an end, you should definitely consider looking for another mortgage deal – one with a better rate. We would advise that you search for a fixed rate mortgage plan, as your repayments will stay the same for a set amount of time, no matter how high rates go.
Basik Money are now offering a 7-year fixed-rate mortgage from only 2.99% APR. With rates on the rise, lenders will begin to pull their cheapest rates, so it would be smart to take advantage of them while you can!
If you decide to switch your mortgage before your current deal is up, you may be charged with an early exit fees from your lender.
If you’re worried, you can speak to one of our debt advisors here at Basik Money who will give you free advice on your financial situation.
HOW WILL THE RISE AFFECT OTHER BORROWERS?
Those looking for secured or unsecured borrowing – whether it’s loans, credit cards or overdrafts – may be affected by the increase in interest rates.
If you already have borrowing and agreed to a fixed rate of interest, you will less likely to be affected by the new interest rates. However, if you decide to take out a loan after the changes to interest rates have taken place, you may discover that the cost in borrowing has risen.
If you are currently using a credit card or overdraft, then it’s possible that the interest for those borrowing methods will increase. Of course, you will be given a heads up from your provider before this happens.
IT’S NOT ALL DOOM AND GLOOM… FOR SOME
If you are currently using a savings account, then you are likely to benefit from the rate rise. This is because banks will go head-to-head to offer you the best rates of interest for your savings account.
It would be a good idea for you to shop around to find the best interest rate for your savings account.
WHAT YOU CAN DO!
If you are seeking some guidance, contact us today on 0330 041 2299 to get free advice from one our qualified advisors.
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