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The Bank of England has increased its base rate, from 0.25% to 0.50%. This is the second rate rise in recent months.
The base rate heavily influences what borrowers pay and savers earn, as it is used by the central bank to determine what they charge other banks and lenders.
So why has the rate increased and what does this mean for you?
The rise has been driven by high UK inflation. Official data released in December stated that prices, such as energy and fuel, are rising at the fastest rate for more than a decade. It is a global problem and has meant interest rates have been forced to increase to help combat the price surges.
What does this mean for our clients with mortgages?
It is likely mortgage holders stand to lose more than savers gain. Customers on variable rate mortgage may face approximately an £11 per month rise per £100,000 of mortgage.
It is vital, especially for those on the standard variable rates (SVR), where lenders have the freedom to increase rates by more than the 0.15%, to see this as a trigger to check if you can save by getting a better mortgage deal.
If you have a fixed-rate mortgage deal, you may presume this won’t affect you, but this only applies until your fixed-rate contract expires. If you are shortly due to renew e.g., in the next six months, we would strongly advise looking at other potentials to lock in a good deal now.
Does the base rate increase affect anyone else?
For businesses already feeling vulnerable, such as those in the hospitality sector, who are already concerned about the impact of increased Covid-19 cases on their business, any government measure that discourages consumer spending is unwelcome.
Interest rates on any variable rate business loans are linked to the Bank of England base rate, which means your payments will be subject to change.
We are not out of the pandemic yet. It may be that the Bank of England pauses before making further increases. However, with interest rates at historic lows, any highly geared businesses concerned about the impact of rising interest rates, should consider fixing any loans that they have.
We have a team of expert mortgage advisers located in our Dalston, Dumfries, Penrith and Workington offices, who are on hand to help you with any queries you may have. Please do not hesitate to get in touch.
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