What does UK interest rate rise mean for savers and borrowers?
The Bank of England has increased interest rates to 0.75% in an attempt to tackle rising inflation in the UK. That means the base rate is back to its pre-pandemic level. What does it mean for UK savers and borrowers?
Only if you have a variable rate mortgage – typically a tracker that follows the base rate, or a loan on a lender’s standard variable rate.
A tracker mortgage will directly follow the base rate – the small print of your mortgage will tell you how quickly the rise will be passed on, but next month your payments are likely to go up and the extra cost will fully reflect the base rate rise. On a tracker currently costing 2.25%, the interest rate would rise to 2.5%, adding £18 a month to a £150,000 mortgage arranged over 20 years.
Some lenders move borrowers on to rates explicitly linked to the base rate when their fixed-rates come to an end. Santander, for example, has what it calls a follow-on-rate that borrowers who took out deals since 23 January 2018 move to at the end of their special offer. At the start of this month it went from 3.50% to 3.75% following February’s base rate rise, and it is now set to hit 4%. This means since the start of December the monthly repayments on a £150,000 mortgage over 20 years have gone up from £858 to £909.
On a standard variable rate things are less straightforward – these can change at the lender’s discretion. Not all lenders passed on December’s increase, although they did move with February’s. Some, such as Nationwide and Halifax, have passed on both previous increases in full.
There is no reason for banks and building societies not to pass on the full increase, says David Hollingworth of the broker L&C Mortgages. “It makes sense for borrowers to prepare for an increase in
Read more on theguardian.com
