The Bank of England increased its base rate of interest from 0.5% to 0.75% last Thursday. The move will impact on borrowers and savers.
The base rate is the Bank of England’s official borrowing rate and it influences what borrowers pay and what savers earn.
The latest increase follows a similar rise in November last year from 0.25% to 0.5%. Taken together, these are the only official rate increases in the last decade.
Voting nine-to-zero in favour of a rise, the Bank’s Monetary Policy Committee said that any future rises are likely to be gradual and limited.
But how will the 0.25% increase affect your debt burden? Although it is only a small change, it could have an impact, particularly for mortgage holders who are struggling with high levels of debt.
Mortgage holders are likely to feel the rate rise the most, but this will depend on the type of mortgage that you have.
If you are on a standard variable rate mortgage then the rate is likely to go up. If you are on a tracker mortgage then it will definitely increase. Three-and-a-half million Brits are thought to have one of these mortgage products.
The increase in interest rate means that the average homeowner on a variable rate mortgage, with £200,000 left to pay, is likely to see repayments increase by £300 over one year.
If you are on a fixed rate mortgage then your rate will not increase in the short-term, but new mortgage deals may be more expensive when the fixed period comes to an end.
Standard variable rate and tracker mortgage holders may want to look at their remortgaging options before the best deals disappear.
Most loans are on a fixed rate basis, so if you have an outstanding loan then there is unlikely to be an impact. If you take out a loan in the future, however, then it could be more expensive.
Credit card holders could soon be facing higher charges. Cards from Barclaycard and Halifax have their interest rate linked to the base rate, so higher rates will kick in straight away.
Other credit card providers may follow suit, leading to higher costs for credit card borrowers.
Increased rates are generally good for savers. As well as an increase on borrowing interest it should also lead to an increase in savings interest on savings accounts and ISAs.
Umbrella Insolvency’s Licensed Insolvency Practitioner Tom Fox noted that: “Although an increase of a quarter of a percent may not seem like much, it will have a damaging effect on the finances of anyone who is struggling with problem debt.
“With a strong possibility of future rate increases, borrowers need to take action now to get their income and outgoings in order.”
For debt advice and information about personal debt solutions, speak to a member of our friendly experienced team today. Call: 0800 611 8888.