One of an extended run of post that I wrote for offshore specialist pensions Advisor PWS. The posts relied on strong support from the client end, with PWS itself ensuring good briefing and contact availability for a subject expert on each post. Expert content blog post for pensions specialist PWS Group.



How is the rise in UK interest rates likely to affect you?

After pegging the bottom at an unprecedented 0.25% for a decade, the Bank of England surprised almost no-one on 2 November when it announced an increase of 0.25% to its Bank Rate, bringing the benchmark lending rate to 0.5%

With UK inflation sitting well above the target of 2% for the eighth month in a row in September this year, and with Sterling still relatively weak and energy prices high, the Bank’s reason for increasing the rate is to try in some measure to counter inflation.

With the Bank of England itself estimating that a full 1 per cent rate rise would take 3 years to lower the inflation rate by 1%, a rise of 0.25% can only ever be a token move in this regard.

As Mark Carney has made clear that rates will not be rising much further in any hurry, the impact of the November 2 rise may be more psychological than anything else for most people.

However, judging as we do at PWS that a smart investor keeps an eye on all changes in circumstances and considers their possible impacts carefully, it’s worth considering what effect this small rise could have on your finances and future security.

The impact on your mortgage borrowing.

For homeowners, or buy to let investors, who have mortgage borrowings on a Standard Variable Rate or Tracker Rate linked to the Bank of England’s Bank Rate, the 0.25% rise will be passed on fairly quickly. A borrower with a £200,000 mortgage who has been paying £900 per month, for example, would be likely to find themselves  paying an additional £25 per month as a result of the increase.

Almost half of all more recent UK mortgage borrowing, and of borrowing by younger, and more financially adept, borrowers, is in the form of fixed rate deals with 2, 3 or 5 year terms, however. If you have a mortgage of this kind then the increase in Bank Rate will have no immediate effect on your monthly cost.

When your fixed term comes to an end, however, the SVR onto which you will automatically migrate unless you arrange a new fixed term product will be a little higher than it was pre Nov 2.

Similarly, any new fixed rate products to which you may wish to switch are likely to have been priced reflecting the increased Bank Rate. Your main reassurance here is that fixed term borrowing is a competitive marketplace for lenders, and so competition forces prices to be kept keen.

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