Interest rates rise for first time in 10 years
The Bank of England’s Monetary Policy Committee has hiked interest rates for the first time since 2007.
The Base Rate has been increased by a quarter of a percentage point to 0.5% from its all-time low of 0.25%.
The MPC voted seven to two in favour of the rate rise.
What does it mean for borrowers?
Those on a tracker rate will see an increase of 0.25% in their mortgage rate, usually within a month. Their rate is pegged at a set margin to the Base Rate so it automatically moves up and down in line with it.
Borrowers on a discounted variable rate or standard variable rate are also likely to see a rise in their pay rate. Although their rates are not directly linked to the Base Rate, lenders usually move their Standard Variable Rates (SVRs) up and down in line with it.
Over the coming week we will see announcements from lenders about increases to their own SVRs, and Nationwide has already confirmed it will pass on the full increase.
The lender noted earlier this week that the impact on monthly repayments would be modest. It said that on the average mortgage, an increase of 0.25% will increase monthly payments by £15 to £665 (equivalent to £180 per year).
Those borrowers on a fixed rate mortgage will see no change to their mortgage rate as they have oped to set their pay rate at an agreed level for a specfic amount of time.
June Deasy, head of mortgage policy at UK Finance, said: “The majority of borrowers will be protected from any immediate effects of today’s small increase because they have a fixed-rate mortgage. Over the last year, two thirds of first-time buyers have opted to fix their rate for up to two years, with a further one in four opting to fix for two to five years.”
What does it mean for the housing market?
It’s too early to say, but it makes this month’s Budget look even more important, and pundits are already expecting a focus on housing.
Paresh Raja, CEO of bridging lender MFS, said: “The rise in interest rates will place an added financial pressure on first-time buyers and buy-to-let investors needing to borrow money. While the impact on the UK property market may not be immediately obvious, there is no question that this month’s upcoming Autumn Budget now takes on greater significance as it must find ways of alleviating stress and providing support for property buyers.
“With the interest rate now sitting at 0.5%, this is a prime opportunity for the Government to address issues like real estate demand and Stamp Duty to ensure the market remains buoyant and readily accessible for homebuyers and investors alike.”