If you’ve seen any sort of news coverage over the past week, then you’ll know that the Bank of England have decided to put the interest rate up, from 0.25% to 0.5%.
It’s a story that’s been hard to miss, not least because it’s the first interest rate increase in over a decade – so it’s natural to wonder how it could affect your household finances.
Firstly, though, it’s worth remembering that despite the headlines, this is a very small increase which simply sets the rate back to what it was in August last year, before the EU referendum.
This means that however your finances are affected, the impact is unlikely to be huge. What it does do, however, is indicate that there may be more rises to come.
Bank of England governor Mark Carney has suggested that this is the case – but has added that changes will be small and gradual.
For now, then, here are some of the changes that we can expect:
Variable rate mortgage payments will rise
The impact on your monthly mortgage payments is largely going to depend on the type of mortgage that you have. If you’ve taken out your mortgage relatively recently then there’s a good chance that you’re on a fixed rate – meaning that (for the time being, at least) this increase isn’t going to affect you.
With a variable rate, you will see your monthly payments increase… although possibly not by as much as you fear. The BBC’s coverage of the rate rise suggests that the average increase will be around £11 or £12.
That said, there’s nothing stopping the banks from increasing further if they wish to. Martin Lewis of MoneySavingExpert has said:
“And most lenders will pass on the full 0.25% if not more. Lenders change their standard variable rates not only based on interest rate moves, but for their own competitive advantage. Do not be surprised if some lenders use this move as an opportunity to sneak rates up further maybe, 0.3%.”
Savings rates will also rise… but not instantly
If your lamenting the news about mortgage payments, then looking to your savings account might help you to feel a little more upbeat.
With Nationwide, TSB and Yorkshire Building Society first out the gate to declare that their variable savings rates will increase, it’s likely that every major banking institution will follow their lead.
However, this is not an instant change and will take several weeks to implement. So don’t expect to see your savings rate increase until early December.
There’s some good news for anybody looking forward to retirement
Thinking of retiring soon? If so, you may be interested in purchasing an annuity. Annuities offer a guaranteed monthly income either for a set period or for life, and are bought using your pension pot.
Following a lull in annuity rates throughout 2016, rates have been slowly starting to rise again – and with more rises anticipated, they may continue to do so.
A nail in the coffin for cheap lending?
One of the more resounding effects of this change may be the impact that it is likely to have on cheap credit. After years of great deals, such as 0% credit, we have already started to hear concerns about irresponsible lending – if the interest rate rise helps to compound this, as it seems likely to, then you may find that everyday borrowing becomes more expensive.
Really, though, it all depends on what comes next: for now at least, this is a small change that you’ll notice in your wallet but won’t see breaking the bank.