The beginning of November 2017 saw the Bank of England take a step that many people had been predicting for months. This was the time when the base rate was increased by 0.25% to a level of 0.5%. It is understandable that a lot of people have questions and concerns about what these changes will mean to them.
It is important to be aware that there is disagreement about what impact these changes will have on the economy. Some specialists think that this is a bad move because it may halt optimism in the economy. However, there are also many people who believe that this rate rise will stifle inflation, which will be good in the long run. Of course, while people want to understand what impact changes have on the overall economy, most people’s interests are focused on how they will be affected.
Fixed rate mortgage holders aren’t badly affected by these changes
First of all, people who currently hold a fixed rate mortgage will not see many changes at first. One of the key benefits of a fixed rate mortgage is knowing how much you have to pay each month in mortgage payments, regardless of interest rates. At this point in time, fixed rate mortgages can be relaxed about their payments but they should be aware that when this agreement ends, they may face a notable increase in how money they have to pay.
The fact that fixed rate mortgage holders don’t have too many concerns means that people holding a variable rate mortgage ae most likely to be affected. According to figures provided by Nationwide, people holding the base mortgage rate (BMR) will see their rate rise to 2.5%. For a mortgage holder with a loan of £175,000, monthly payments will rise from £763 per month to £785 per month, which is an increase of £22.
There are concerns about further base rate increases in the future
While a rate increase of 0.25% is a modest one, many people are concerned about what is going to happen in the future. There have already been industry specialists predicting that this November 2017 change is just the first step in what will be a number of incremental increases. If this is the case, the amount of money people pay each month for their mortgage may rise sharply.
It is up to every mortgage holder to determine how they are affected by the rise but a study undertaken by the Resolution Foundation says that 11% of households in the United Kingdom will be affected by the change. When the last notable change occurred a decade ago, the same study found that 19% of households in the UK were affected. Two reasons for the drop-off in affected figures were the volume of people who hold a fixed rate mortgage and the fact that the level of home ownership in the country has fallen.
While the rise in the base rate is generally seen as bad news for mortgage holders, people with savings are hoping that the increase will lead to them receiving a better return on their investment.
There is no denying that many people were concerned about the base rate increase by the Bank of England and a lot of people will be reviewing their finances closely as we reach the end of 2018. If you need assistance in understanding how you are affected by these changes, be sure to contact Austin Property Services.