What Does The Bank Of England Rate Raise Mean
The Bank Of England base rate effects everyone differently
As the Bank Of England raised the base rate on 3rd February 2022, a lot of things changed. This is the second meeting in a row now that they have upped the interest rate, with the previous raise increasing it from 0.1% to 0.25%. With 0.1% being a historic low for the rate, it was only a matter of time before it changed. It also comes as no real surprise with it being upped again to the new rate of 0.5% with many economists forecasting this would be the case. The more surprising factor is that 4 of the 9 voters on the rate rise wanted it to go to 0.75% instead. With potentially another Bank of England rate raise coming soon, we’re going to dive into
Essentially, rate raises are used to tackle economic issues such as inflation. With inflation reaching 30 year record high levels recently, the bank is trying to up their interest rates to tackle this. The very brief theory behind this is that with higher interest rates, lending becomes less affordable for retail clients to take and means it’s better for them to save their money as it would return better interest. With this being done, there is less consumer spending and demand which in turn means there is less stress and strain on every day products meaning their prices are more stable.
Mortgage interest rates will rise
If you are on a variable rate, you would have already noticed that your monthly payments have gone up. For those of you on a fixed rate, this would stay the same so long as you are still in a fixed rate period. For those of you that are looking at purchasing or remortgaging, rates will raise with lenders but it normally takes more time for it to filter through. This means that interest rates will rise with each lender as and when they review their rates as per what the Bank of England has said.
What this generally means is that lending has now gotten more expensive which may slow down the property market. All in all though now is going to be the best time to get lending given the rates will probably be going up. Although you shouldn’t rush, a new Bank of England rate raise would mean more expensive mortgages all round.
Getting more from your savings
The up side of the Bank of England rate raise means you will now be getting more money for your savings. With rates being so low for so long, savings accounts have been a very poor investment recently and have been actually returning less than inflation. Meaning that your money was being worth less over time.
But as the Bank of England rate’s go up, savings accounts become more feasible and will return more in terms of interest. Although they are still quite low and utilising your hard earned cash in investment funds may be more profitable. Everyone’s circumstances are different though.
How can you navigate this rate raise with ease
Each and every persons finances are different and require different steps to meet people’s specific goals. That is where our whole of market financial advisors come in to play to help assist you get your financial position straightened out and aligned with your goals. Contact us today for a free initial consultation to see how we can help improve your financial future.
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