The Bank of England has raised interest rates from 0.25% to 0.5% - dealing a major blow to millions of homeowners.
The Monetary Policy Committee voted 7-2 to increase the benchmark rate, and signalled that two more rate increases are likely before the end of 2020, The Wall Street Journal reports.
How the rate rise affects mortgages
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“If you have a fixed-rate mortgage (currently in high demand), you have nothing to worry about - yet. Your rate is guaranteed for the life of your current deal, so there will be no extra cost,” Sky News reports.
However, the website points out that lenders are expected to increase the cost of new fixed-rate mortgages to reflect the Bank of England’s decision, making remortgaging more expensive.
The biggest losers will be households with a variable rate mortgage, the BBC says. Of the 8.1 million households with a mortgage, 3.7 million have either a standard variable rate or a tracker rate.
The average outstanding balance is £89,000, for which payments will increase by about £12 a month, according to trade association UK Finance. Homeowners owing £250,000 with 25 years left on their mortgage can expect to pay an extra £32 per month, or about £384 a year, reports the BBC, citing UK Finance figures.
How the rate rise affects savers
The rise is good news for savers, who will see higher rates of interest on their current accounts. Money expert Andrew Hagger told the The Sun that the benefits won’t be particularly significant - a rise of 0.25% on a balance of £2,000 will result in a gain of just £5 in interest a year - it is a step in the right direction.
“The average easy-access savings account is currently paying 0.35% in annual interest,” adds the BBC. “Some banks accounts are paying as little as 0.01%. So any rise in base rates could be a welcome boost for savers, even though any increase would be small.”
