What does the base rate rise mean for mortgage rates?
The headline sounds a lot scarier than it actually is. When the Bank of England raise the base rate, it’s a big deal. The interest rates have been at 0.1% for a long time now to stimulate economic growth off the back of the pandemic. Factually though, the low rate of 0.1% was historic. Interest rates have never been lower with that level of base rate from the Bank of England. Whilst this raise to 0.25% is a rise of more than double, generally, this is still very low.
It’s not often they do raise the rates, with reviews done every month it requires a majority decision by the policy makers. Nine of them make up the committee and it requires a majority in order for the interest rates to move either way.
Why the Bank Of England raise the base rate
The general reason that the Bank Of England raise the base rate is to control inflation. They make borrowing for banks more expensive which in turn makes the rate at which retail clients borrow more, more expensive.
Borrowing money becomes more expensive, while saving money earns more, thus people may be encouraged to borrow less and save more. This lowers demand for some goods and services, perhaps slowing inflation. It’s the main tool the Bank Of England have to control the economy. At the time of writing in December 2021, inflation is predicted at 4.6% according to the Office Of National Statistics. This is way above the bank’s target of 2% and this is why they have stepped in to try and control this.
Protecting yourself against future base rate raises
What interest rate rise mean for home owners really depends on what type of mortgage you have. If you are in the middle of a fixed interest rate, nothing will change. You will still make the same payment each month to your lender until your fixed rate ends. At which point you will then look to fix a new rate at whatever the rates are when that time approaches. This is the benefit of fixed rates, they give you immunity from fluctuation in interest rates when you are in the fixed rate term.
However, if you are on a variable rate then you will see a change in your monthly payments. Of course, there are many different types of variable rates. From discount rates to offset, they all have their different benefits and drawbacks. The main characteristic of these rates are though, that they will all move with the change in interest rates set by the Bank of England.
The best way to avoid this turbulence? Fix an interest rate for two, three, five or more years today. Our mortgage advisors are whole of market and can advise you on the best option for your financial situation today. Just get in touch.
Equity Release plans are not right for everyone and it is important that you fully consider your options and receive independent financial advice before making a decision. It is also important that, if you do decide to use an equity release product, you choose one that meets your needs.
Remember that taking an equity release plan is generally a long term option. However, there are flexible plans available that may fit your varying needs and some will allow you to repay in the future without penalties.
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