In an attempt to tackle rising inflation, the Bank of England has today increased interest rates to 0.25% from a historical low of 0.1%. What does this mean for you?
If you have a variable rate mortgage, typically a tracker mortgage or loan that follows the base rate, then you are likely to see the repayments rise next month. It is worthwhile checking the small print on your mortgage or loan agreement to establish when this increase will be implemented. Interest rate increases on standard variable rate mortgages are at the lenders discretion, however there is no reason for a bank or building society not to pass this onto the consumer.
Due to enforced saving during the pandemic and years of low interest rates some people are in the fortunate position to now be mortgage free. If you fall into this category then, the inevitable increase in mortgage rates will have no impact on your housing costs.
In terms of other borrowing, credit cards are variable but not explicitly tied to the base rate. Credit card providers can change rates whenever they want to, as American Express have recently. Most other secured loans are on a fixed rate, however it would be prudent to double check any paperwork for peace of mind.
If you are considering retirement, the rate increase could have a positive impact as we could see a rise in annuity rates. Annuities are essentially insurance contracts that provide a guaranteed income in retirement in exchange for your hard saved pension pot. In recent years annuity rates have been low, as providers invest heavily in government bonds, which are expensive when there are low interest rates. A rise in the interest rate could see these bonds sold more frequently, making them cheaper. This will allow annuity providers to offer potentially better returns.
Historically savers have been the main losers in the years of low interest rates. Many accounts currently pay only 0.01%.
Savings account providers are not obliged to change savings rates, however, should they wish to attract more savers they will have more scope to offer better deals.
Should you wish to discuss your personal financial position please get in touch.
Email: hello@taylorwealth.co.uk
Tel: 01245 520 001
This summary does not constitute financial advice and is designed for educational purposes only. Please discuss your personal financial situation with your financial adviser before a making any decisions.
A pension is a long-term investment, any advice or considerations are personal to each individual’s circumstances. The value of your investment and the income from it may go down as well as up. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
Your home may be at risk if you do not keep up repayments on your mortgage.
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