The Bank of England (BOE) monetary policy committee is due to meet tomorrow to discuss interest rates and implement any changes. Predictions of a rate hike are widespread especially since the Governor of the Bank of England, Mark Carney, stated that he expects an interest rate rise in the ‘relatively near term’.
But what impact will an interest rate rise have?
An interest rate rise of 0.25% will increase the Bank of England base rate to 0.5%. Although this is still a historically low figure existing borrowers whose mortgages are directly linked to the BOE base rate will see an instant increase in monthly repayments. For example:
- A £200,000.00 repayment mortgage on a 1.25% tracker mortgage linked directly to the Bank of England base rate would currently pay £942.27 per month over 20 years. Should the base rate increase by 0.25% the interest rate payable on this mortgage would instantly rise to 1.50%, increasing the mortgage payments to £965.09 per month over 20 years. That is £273.84 per year extra mortgage borrowers would need to pay.
Many mortgage lenders have withdrew some of their lowest rates on the market which could be due to the above predictions and a rate rise could have a further impact on product availability. If you are currently on a standard variable rate or your current deal is about to come to an end, it may be worth reviewing your mortgage needs with an adviser.