A member of the Bank of England’s rate-setting committee has fuelled speculation that interest rates could rise as soon as November. Gertjan Vlieghe put forward the arguments for a rise in rates “as early as in the coming months” in a speech to economists in London.
We look at what could happen to homeowners if rates do rise. If you are look for advice we suggest giving Jon Brazenell of MSB Financial Services/The Mortgage Selection Bureau a call on 01789266855 or email email@example.com
What would a rate rise mean for homeowners?
It would mean higher monthly bills for millions of people with variable rate and base rate tracker mortgages.
If and when it happens, it would be the first rise in borrowing costs for a decade –many of these people have never seen their monthly repayments increase.
Those on fixed-rate mortgage deals would be protected from any increase, but only until the end of their deal’s fixed term.
How much higher
The cost of an interest hike will vary per household, depending on the terms of the mortgage, how long it is taken out for, and other factors.
The average UK standard variable mortgage rate (SVR) is 4.6%, according to financial data provider Moneyfacts. Someone on that rate with a £200,000 outstanding mortgage balance and 25 years remaining would pay £28.72 a month extra (a payment of £1,151.77, up from £1,123.05) if the rate goes up by 0.25%, assuming it is on a repayment basis.
If there were a series of rate increases, and the rate was to go up by a total of one percentage point (ie, four lots of 0.25%), the extra cost would be £117.10 a month, or more than £1,400 a year.