It’s happened! The day thousands of people have been dreading is finally here and the Bank of England has increased interest rates for the first time in the last 10 years. The change is only small, increasing from 0.25% to 0.5%, but it’s likely to negatively impact millions of people across the country. Interest rates may increase further in the coming months, but nothing is set in stone just yet.
So, how is the change likely to affect you? Here’s a quick rundown of the ‘winners and losers’.
Homeowners
Mortgage bills are likely to rise for millions of homeowners as a result of the interest rate rise.
Initially, the increase is predicted to affect around 40% of Britain’s 11 million mortgage holders who are on variable or tracker rate mortgages.
Homeowners nearing the end of their fixed rate mortgage deals will also be affected.
It’s unclear whether lenders will increase their rates immediately, so it may be wise to protect yourself by fixing your mortgage deal as soon as possible. By locking yourself into an affordable rate immediately, you can protect yourself from rises and ensure you’re paying a consistent amount for the duration of your new fixed rate deal. This can help you budget effectively and avoid fluctuations in your living costs.
If you decide to remortgage, I’d recommend getting in touch with a broker. They’ll help you find the best deal. Digital mortgage broker Habito could be worth a go, and if you use my referral link, you’ll earn £100 cash on successful completion of your new mortgage deal. I’ll get £100 for recommending you.
Renters
Unfortunately, the cost of rising mortgage repayments may be passed onto renters. If landlords see their repayments increase as a result of the interest rate change, many may increase their tenants’ rent. I guess there’s not much renters can do about this, unfortunately. I’ll keep an eye out for relevant campaigns and will update this post if I find any.
Borrowers
If you have debts or you plan to borrow money in the near future, you may be forced to pay more money in interest on your debts. If you can afford to do so, try to pay off your debts sooner rather than later and the amount of interest you pay will fall.
Savers
Savers are likely to be the only winners from this interest rate change, as banks may increase the amount of interest they offer on current and savings accounts. If you don’t already hold your money in a high interest current account, I’d advise opening one immediately. There’s a risk that rates may change further once you open an account (maybe you’ll open one with ‘Bank One’ only for ‘Bank Two’ to suddenly launch a better deal) but I think this is often a risk worth taking. It’s unlikely that there’ll be anything to stop you changing banks again if necessary. Read the terms before opening an account to find the best one for you.
First Time Buyers
Are you in the process of saving for your own place? This news could be a bit of a mixed bag for you. On the one hand, your savings may benefit from a nice little interest boost if banks decide to increase their rates, but on the other hand, when you come to buy, the mortgage deals on offer may be less generous than the ones that have been available recently.
I’d strongly recommend using a mortgage broker to find the best deal (even if you end up with the best deal of a bad bunch). I used Habito to find my mortgage and they were brilliant. They’re a fee-free online mortgage broker and if you’d like to use Habito as your mortgage broker, sign up with my refer a friend link and you and I will each earn a £50 John Lewis voucher on successful completion of your mortgage.
