The Bank of England has hiked its interest rates from 0.5% to 0.75% (only the second rise since 2009), with members of the nine-strong Monetary Policy Committee (MPC) voting 9-0 in favour of the move.
AJ Bell chief investment officer Kevin Doran said “The UK economy is hardly charging ahead but, with interest rates at historic lows, Mark Carney and Co know that they have little room for manoeuvre should there be a stumble as we head towards the 29 March Brexit deadline next year. Today’s 0.25% increase at least reloads one bullet.
Whilst the increase should see an improvement for savers, with inflation still being fuelled by a rising oil price and weak sterling it is of only limited help. Let’s hope banks are quick to pass on the increase to at least provide some help to savers although unfortunately this often doesn’t materialise.
It will also not be welcomed by UK borrowers on standard variable rates (SVRs), many of whom will only ever have known rock bottom interest rates and hence might be vulnerable to increases.
Commenting on how it will affect the mortgage market, Vida Homeloans sales and marketing director Guy Batchelor added: “More than a third of homeowners are still on a standard variable rate mortgage (SVR) according to research by L&C Mortgages and borrowers on this type of mortgage have been enjoying a low interest environment for nearly a decade, so this interest rate rise represents a significant change in landscape. This rate rise will not cause a drastic increase in monthly repayments but could be a signal of things to come so we may see some buy to let properties coming back onto the market which would be good news for first-time buyers.
Those borrowers who are on SVR should contact their mortgage broker for whole of market advice, as this rate rise could make certain customer segments more vulnerable. For example, any significant movements upwards in base rate may cause some downsizing activity amongst older borrowers. They should also take professional advice about their options.”
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