Now that the dust has settled on the first Bank of England base rate increase for a decade, what does it truly mean for your family finances? Here are some answers to your questions about interest rates, to help you understand:
How does raising the interest rate control inflation when it makes everything more expensive?
Inflation generally happens when an economy is growing too fast, this means that businesses can increase the price of goods and people will still buy them. In theory, raising interest rates leave businesses and people with less money to spend and also makes saving more attractive, ultimately reducing inflation.
When will my savings rate go up?
It has only been a few days since the base rate announcement and many banks and building societies are yet to publish whether they are passing the increase on to savers. Mark Carney, the Bank of England governor, said he expected all providers to increase returns for savers but this may not happen immediately. The link between savings and bank base rate has been broken for a long time, mainly because of the various government initiatives which meant that banks no longer needed savings to support their mortgage books. Savings rates are more often driven by market competition which means some banks and building societies may wait and take a wider market view before deciding whether or not to increase their rates.
With rates on the rise, now could be a good time to conduct a review of your savings accounts and take action on any that are paying a low rate. With rates on the rise, now could be a good time to conduct a review of your savings accounts and take action on any that are paying a low rate.
Police Mutual offer a range of savings and investment products. Whether you want to save regularly or invest a larger amount our products could help meet your needs. To find out more about our range click here or call the team on 0345 88 22 999.
What will be the impact on house prices?
Higher interest rates lead to higher mortgage costs. In the past this has had the effect of holding back house prices. This bank base rate rise is comparatively small, so at this stage it’s not clear if there will be much impact.
Will my monthly mortgage repayments increase?
If you have a fixed rate mortgage then it’s good news – your monthly payments will not change until the end of your deal. However, if you have a variable or tracker rate mortgage your payments will most likely increase, with most lenders passing the 0.25% rise onto borrowers. Now could be a good time to review your mortgage arrangements. You can research the market yourself but this can be very time consuming and complex. Consider contacting a mortgage adviser who can help you find the deals you qualify for and guide you through the process.
Police Mutual offer a mortgage advice service, which offers access to the whole of the mortgage market – over 80 leading UK lenders – and there is no charge for their advice.
To find out more and to book an appointment call the team today on 0800 032 5333 or enquire online.
What will happen to my credit cards and personal loans?
The base rate has almost no effect on the rates charged by credit card companies. In fact, average APRs have increased whilst the base rate fell. However, credit card companies could make new deals less attractive or could consider increasing the rates they charge for longstanding customers.
Personal loans are generally set at a fixed rate of interest so the increase should not affect existing customers. It is possible that rates could increase for new customers taking out a personal loan, making monthly repayments more expensive.
What does the future hold? Is this the start of regular Bank of England base rate increases?
Is this increase a one-off or is it a sign that more increases are to come? The minutes from the Bank of England meeting suggest that while rates may continue to go up it will happen very gradually over the next 3 years. The Bank of England have also confirmed that they have no plans for any drastic changes in the near future, which could give you more time to plan and review your finances.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
For members, Police Mutual provides free mortgage advice and receives a commission from the mortgage lender which we use to fund this service
Mortgage Excellence Plc (MEX), trading as Police Mutual, is registered in England & Wales No. 3527577. Registered office: Alexandra House, Queen Street, Lichfield, Staffordshire WS13 6QS. MEX is authorised and regulated by the Financial Conduct Authority.
Police Mutual Assurance Society Limited is an incorporated friendly society authorised and regulated by the Prudential Regulation Authority and regulated by the Financial Conduct Authority. Registered office: Alexandra House, Queen Street, Lichfield, Staffordshire WS13 6QS.