BOE rates highest since March 2009
The BOE rate rise from 0.5% to 0.75% may seem small, but it marks the most significant rise in borrowing costs since March 2009. Many mortgages will rise in cost, but savers will be looking forwards to slightly better returns. The last increase in rates was November 2017, see our post How will BOE rate increase after 10 years affect you.
What does the increase mean for you?
This long period of low interest rates has been bad news for savers and in some cases has caused them to seek riskier investments for a better return.
For those saving to pay a deposit on a future home, the interest rate rise will be helpful. They will not have to save for longer and this will increase the number of first time buyers acquiring their dream home.
Depending on who you bank with some savers will not see the benefit of today’s interest rate rise.
The BOE rate rise will most definitely increase borrowing costs for households and businesses on tracker or variable rates. As oppose to the last rate cut where some lenders were reluctant to pass this on. Rest assured they will be passing on today’s 0.25% rate increase. Which will increase monthly outgoing by approximately £25 pcm on a £200,000 loan.
With interest rates so low we may continue to see a spurt of re-mortgaging with home owners taking advantage of the cheaper borrowing.
Like home owner’s investors will feel the rate increase if they on tracker, discount and even standard variable rate arranged mortgages. As far as future mortgage applications are concerned investors will be more concerned if highly geared (high LTV). As well as the issue with the BTL changes that came into force last month.
Generally, any rate rise might also good for retirees buying an annuity, which effectively guarantees an income for life.
Annuity rates follow the yields or interest rates on gilts (long-dated government bonds).
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