If you have been keeping an eye on the UK industry, you may already know that the Bank Of England has increased the interest rates from 0.5 percent to 0.75 percent after much hype.
Expecting solid employment levels, strengthening of the economy, a potential increase in wages, and more consumer spending aspects have played a vital role in this decision.
The Bank’s key aspect is to keep up with the increasing cost of living – called as Inflation – under control. It uses the prime key interest rate, called as the base rate or Bank rate, which proves to be a point of reference for how much banks and the developing economies pay their savers and charge from their borrowers in terms of interest.
Generally, an increase in the Bank rate is a good sign for the UK’s 45 million savers and borrowers with poor credit ratings – however, the reality is a bit more nuanced.
The Key Aspects are:
Interest rate facts:
- The average standard variable mortgage rate is 4.72 percent
- More than 3.5 million residential mortgages are on a tracker or variable rate
- On a £150,000 variable mortgage, an increase of 0.75 percent will raise the annual cost by £224
A bank rate increase does not assure an equivalent increase in the interest rate being paid to the savers. Half of it did not move after the last increase in the rate. Check out the UK interest rate history today!
No easy access saving account at the main High Street bank pays an interest rate of more than 0.5 percent.
When considering the UK, around 9.1 million households run on mortgage. Out of all these, more than 3.5 million are on a tracker or variable rate. These homeowners would be the most affected, as their monthly payments would increase. Although this is a small increase, which will not be specifically painful for most of the homeowners out there today, but some may find it to be an extra burden.
Those on such tracker rates tend to be older, and with comparatively small outstanding mortgage balances. The average outstanding balance is around£112,000. For someone with 20 years left on their mortgage will find their monthly bill increasing by approx £14 a month. However, those who have a larger balance will definitely see an increase in their mortgage bills.