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Impact of rising rates ‘minimal’

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04/09/2017
Impact of rising rates ‘minimal’

An interest rate rise would have a minimal effect on many borrowers’ repayments, so there is no need to panic, said Moneyfacts.

The financial information provider noted the level of uncertainty around whether or not the Bank of England will increase its Base Rate in the coming months, and said that some borrowers are worried about the effect this will have on their monthly repayments.

In response it has charted the course of a typical 25-year 150,000 repayment mortgage. It details interest charged and capital repaid as well as the effects of an incremental Base Rate rise on repayments (based on the average Standard Variable Rate of 4.6%).

Low impact

Moneyfacts found that a small increase of 0.25% to the Base Rate would have a relatively small impact on interest repayments.

Those sitting on the average SVR of 4.6% would see an increase of just £17 and borrowers further along a 25-year mortgage journey would see even less of an effect, as they would have already repaid a significant proportion back to the lender.

Charlotte Nelson, finance expert at moneyfacts.co.uk, said: “A key member of the Bank of England has suggested that the time has come to start considering a ‘modest’ Base Rate rise to curb the effects of rising inflation. The thought of an imminent rate rise will be causing some borrowers to panic, particularly those who have become accustomed to low mortgage rates and repayments.
  
“It is difficult to say whether once the Bank of England finally decides to rip off the plaster they will stick to just the one rise or consider a series of rate increases. The latter may have more of an impact on borrowers and eat into their discretionary income.
  
“Borrowers should take the time to assess their situation and ensure they have a buffer in place if they are on a variable rate deal so they can cope with an increase to their rate, or opt for a fixed rate deal to secure their monthly repayments before it’s too late.”

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