For only the second time in the last 10 years, the Bank of England has raised the interest Rate. Increasing from 0.5% to 0.75% – the highest level since March 2009, this was a decision that has impacted many people.

Whilst the estimated 3.5 million people with variable or tracker mortgages will see repayments increase, the Rise will be welcomed by savers.

If this were to happen how would it affect you?

What if I have a mortgage?

If you are on a longer-term fixed rate mortgage your payments will remain unchanged. You will, however, need to account for the rise once your fixed term ends.

If you are on a standard variable rate (SVR) mortgage you may actually see no change. Lenders are considered unlikely to increase rates until there has been a more significant increase in the base rate.

If you have a tracker mortgage that follows the base rate you will, of course, inevitably see an increase in your payments. Depending on the size of your loan this could be anything from around £6 on £50,000 and £31 on £250,000 according to figures from the Council of Mortgage Lenders.

Those on interest-only mortgages will see a larger increase in their payments as the whole amount is calculated by interest rates rather than a repayment mortgage where the interest only makes up part of the payment.

For example – On a £150,000 variable mortgage, a rise to 0.75% is likely to increase the annual cost by £224

Four interest rate facts

• A huge number of people have been impacted by this rise. There are currently estimated to be more than 3.5 million residential mortgages which are on either a variable or tracker rate

• The average standard variable rate mortgage now stands at 4.72%

• Unfortunately, the increase in interest rate does not guarantee the equivalent increase in interest paid to savers. More than half of all building societies and banks did not increase their saving rates after the last rise

• It’s very disappointing to see that no easy access savings account at a major High Street bank will currently pay more than 0.5%

This must be good news for savers though!?

Interest rates on savings have been poor for many years now but an increase in the base interest rate will put pressure on providers to raise their rates. There has been some improvement recently and we would expect this to continue to the end of the year.

The guys over at the excellent Revolut blog took a closer look into how this may impact savers. For more, please check out their article – ‘What the BoE’s interest rate rise means for you and your money‘

What next?

Mark Carney has told us that although the rise in the base rate will be small but is is sticking to its guidance that interest rates will continue to head higher, but only at gradual pace and to a limited extent.

The financial markets have taken this on board and are forecasting one, and perhaps two, rises of 0.25% over the next 2 years.

If you are unsure what option would be best for you we recommend you speak to a mortgage advisor who will be able to talk you through all the possibilities.

For more on this, please visit the dedicated area of the BBC website by clicking here.

If you are having short term financial difficulties but have a poor credit history and need a loan we can help. Our panel of lenders will have an offer back to you within minutes of application.

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