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Is the interest rate rise going to affect me?

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Written by: Andrew Merrell | Posted 02 November 2017 12:39

Is the interest rate rise going to affect me?
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If you are a mortgage-payer or a saver you will be in one of two camps today.

Those paying off their home loans will be wondering how much more they might be paying each month.

Those with money in the bank fed up with it not accruing valuable interest for their futures will perhaps not have a big grin on their faces – what with the rate only rising by 0.25 per cent – but they might at least be smiling a little.

The path was smoothed for today’s rise by the man who heads up the Bank of England, Mark Carney, and the announcement will see rates rise to 0.5 per cent.

If it came to a head count those with something to celebrate would win – as there are more savers than borrowers. But when it comes to the impact on individuals the jury is out.

In recent years many mortgages have been taken out on 35-year terms and households have saddled themselves with giant debts.

According to the Bank of England 43 per cent of homeowners are on tracker mortgages, meaning their payments will rise with immediate effect. Which means, of course, the rest – the majority – are on fixed-rate deals and will not be affected until the terms of those deals run their course.

According to the nationwide the 0.25 per cent rise will increase the average standard variable rate mortgage for someone repaying £125,000 by £15 to £665. In other words they would pay an extra £185 annually.

Those repaying £250,000 will see a £31 increase and – an annual rise of £369.

Going forward, should rates continue to rise the penalties will quickly become apparent.

The current average monthly payment for new mortgage payments pre today’s rate rise, according to the Nationwide, was £698.90. Today’s 0.25 per cent rate rise will result in a £19.5 increase in monthly payments.

Should rates rise by 0.5 per cent this will become £718.36, a rise of £38.61 a month.

At to 0.75 per cent it becomes £758.38, a rise of £58.38, at one per cent it becomes £758.20, a rise of £78.48, at 1.25 per cent it becomes £778.56, an increase in payments of £98.82 a month, at 1.50 per cent it becomes £799.23, a monthly payment of £119.48, at 1.75 per cent the average it reaches £820.18, a rise of £140.44 a month, and at two per cent it reaches £841.43 a month, a rise of £161.69 a month.

Pre rate rise the average easy-access savings account was paying 0.35 per cent in annual interest. Some accounts paid as little as 0.01 per cent.

The nine-strong rate-setting panel of the Monetary Policy Committee (MPC) said the rate rise was needed because falling unemployment had left the economy with “limited” slack. Two members of the committee did not vote in favour of the rise.

Some analysts have predicted two more rate rises in the next three years to one per cent.

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