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Over four million homeowners will see their monthly mortgage repayments rise following the announcement that the Bank of England has increased interest rates for the first time in over 10 years. Interest rates have risen to 0.5% from 0.25%, reversing the emergency action that was taken immediately after the Brexit vote.
The move by the Bank of England comes amid householders increase in rising prices, which is outstripping the growth in earnings, following the devaluation of the pound since the EU referendum.
The average rise for those on a variable rate will £22 per month, although the recent popularity of fixed-rate mortgages (due to the competitive deals that have been available) means it will initially affect less than half of households.
The Governor of the Bank of England, Mark Carney, has reassured consumers that it wasn’t the start of a sustained upward trend in rates. He stated:
“To be clear, even after today’s rate increase, monetary policy will provide significant support to jobs and activity. And the monetary policy committee continues to expect that any future increases in interest rates would be at a gradual pace and to a limited extent.”
According to The Telegraph, experts are expecting two further quarter-point increases in interest rates by 2020, which would leave them at 1%.
The rise in rates has raised questions over the ability of homeowners to repay their outstanding loans given that there has been a steady rise in personal borrowing and credit cards in order to offset higher prices.
According to accountancy firm Moore Stephens (The Telegraph) over the first year of this rate rise, households are expected to face around £1.8m in additional interest. In addition, Moore Stephens has estimated that households will pay around £465m in additional costs on credit cards, overdrafts, personal loans and car finance as a result of the rate rise. In fact, in recent months there have been some signs of consumers using their savings or borrowing money via bank loans or on credit cards to keep up with day-to-day spending.
On the flip side, savers will benefit from the rate rise, with the increase in rates already being passed on by some banks.
If you would like to find out how the recent rate rise will affect you, contact Derngate Wealth today.
Your home may be repossessed if you do not keep up repayments on your mortgage