Homeowners who have tracker or variable mortgages will see their monthly payments increase after the Bank of England decided to increase its base rate by 0.25 percentage points.
Earlier this week, the Monetary Policy Committee (MPC) voted unanimously to increase its bank rate from 0.5 per cent to 0.75 per cent – making it only the second interest rate increase in more than ten years.
The move is the result of trying to encourage economic growth in the UK and has been predicted for some time.
However, it will affect more than 3.5 million people who have a mortgage that follows the base rate in the UK, according to the BBC.
While monthly costs are not likely to increase dramatically, it will increase payments on a £150,000 variable mortgage by £224 per year on average.
Mortgage expert at L&C Mortgages David Hollingworth also noted that the rate is likely to affect groups of people differently, saying: “Those most vulnerable to rising rates will be borrowers on their lender’s SVR [standard variable rate].”
However, he stated that many borrowers were in tune to the possible interest rate increase and have fixed their mortgage deals ahead of the recent rise. Those who have done this and are on a fixed-term mortgage will not be affected by the MPC’s decision.
Therefore, they will still be able to have enough money to improve and update their home with bathroom or kitchen repairs, without their ability to save being affected.
Those who are new to borrowing and are not on a mortgage yet might see the cheapest products slashed from the market, as providers will not be able to sustain offering low paying mortgages.