what will the interest rate increase mean for your money?

By Kieran Drew
In November 2, 2017
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For the first time in more than 10 years the Bank of England has raised interest rates. The official bank rate has been lifted from 0.25% to 0.5%.

Almost four million households face higher mortgage interest payments after the rise, but savers may are likely to see their returns increase.

Here is how it is likely to affect you.

Savers

On the face of it, the decision to raise the base rate looks like good news for savers, who have had very little to celebrate in regard to returns on their deposits for some time. Although it remains to be seen, in reality it is unlikely that banks will pass on the benefits to their customers.

 

Mortgages

If your mortgage is on a variable rate you will face higher monthly bills after the base rate rise. Lenders were also expected to follow suit by raising interest rates on home loans.

What about fixed rate mortgages?

On Thursday, the Bank of England said to expect further gradual rises in base rates. Brokers anticipate a surge in borrowers signing up to fixed-rate deals — and greater demand for longer fixed deals of five years.

Should I remortgage?

If you are looking to remortgage, you can still access historically low rates, with two-year fixed rates available at 1.09 per cent or five-year fixes at 1.68 per cent for those with a deposit of 40 per cent or more.

 

Pensions

What affect will it have on annuities?

Annuity rates are linked to movements in interest rates and the rate rise is likely to feed through to higher income for pensioners. However, in my opinion this will not make annuities more attractive in comparison to other options.

 

Investments

The markets have already accounted for the decision. It is therefore predicted that there will be little impact on stock prices in the short term, despite the unusual circumstance of a rate rise being implemented amid relatively low GDP growth.

 

The crucial question remains – are we likely to see more rate rises in the future?

Due to the Bank of England forecasting inflation to fall below 3 per cent, some think it is unlikely we will see a series of rises next year. A key argument against more rate rises is that it would risk choking growth in an economy already beset with Brexit-related jitters.

There is increasing evidence that the consumer is struggling, wage growth is not keeping up with inflation and disposable incomes are being squeezed. There is no doubt that the rate rise was due to inflation increasing, so hopefully it will have the desired effect of curbing inflation, without stalling the economy’s slow and steady recovery.

If you want to discuss your savings and investments and the effect this rate rise will have on them, please just call us on 01489 877547.

 

Disclaimer

Your capital is at risk. Investments can fluctuate in value and investors may not get the amount back they invest. Past performance is not a guide to future performance. Tax rules can change at any time.

Please remember your home or property may be repossessed if you do not keep up repayments on your mortgage.  We give clients the option to pay for mortgage advice by fee rather than commission. Equity Release refers to lifetime mortgages. To understand the features and risks, ask for a personalised illustration.

The Financial Conduct Authority do not regulate, Will Writing, Buy to Let Mortgages, Auto Enrolment, Tax Advice and Estate Planning.

The opinions contained within this blog, do not constitute financial advice and no action should be taken based on this content alone.

 

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Redwood Financial Family Wealth & Estate Planners Ltd is Directly Authorised and regulated by the Financial Conduct Authority. FRN number 774469.

Disclaimers

The Financial Conduct Authority do not regulate, Will Writing, Buy to Let Mortgages, Auto-Enrolment, Tax Advice and Estate Planning. Your capital is at risk. Investments can fluctuate in value and investors may not get the amount back they invest. The guidance and/or advice contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK. https://register.fca.org.uk/

Contact us

Telephone: 01489 877547
Email: info@redwoodfinancial.co.uk

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Redwood Financial Family Wealth and Estate Planners Ltd Company Number: 08926661
Registered Office Address: Wellesley House, 204 London Road, Waterlooville, Hampshire,