On Wednesday 9 December 2015 the Bank of England Monetary Policy Committee UK interest rates voted 8 to 1 to leave interest rates unchanged again at 0.5%.
The nine rate-setters on the Monetary Policy Committee (MPC) voted 8-1 for no change, predicting that inflation would stay below 1% until the second half of next year. Ian McCafferty, one of four external members of the MPC, was the only one to vote for a rate rise. He also voted for a quarter-point rise at each of the previous four meetings. It is the 81st meeting in a row at which rates have been left unchanged at 0.5%.
About UK interest rates
Interest rates play an important part in your life. Whenever you borrow money, through a mortage you are usually charged interest. On the other side of the coin, if you have savings, then you can earn interest on the money you have put away.
If you turn on the news these days, it’s not unusual to see reports about the Bank of England (BofE) base interest rate. Each month savers and borrowers wait to see whether the rate has gone up or down, because this can affect your finances in a major way.
Since March 2009, on the back of the 2008 credit crunch, the BofE rate has stood at a record low of 0.5%. It was 4.5% only five months earlier in October 2008. The BofE was hoping that by reducing the rate, it might stimulate borrowing, encourage shoppers to spend and businesses to invest and create jobs.
If you have a large amount of savings and rely on the interest then this has not been good news. The rates that your bank or building society offers you in return for holding your savings with them are affected by the BofE rate. If the base rate goes down, the savings rate you are offered goes down as well. Savings accounts have performed pretty poorly as a result.
On the other hand, people with mortgages have fared better. If you have a tracker mortgage – especially it if is directly linked to the base rate – then you will have seen the cost of your repayments tumble. According to the BofE, standard variable rate mortgage holders have seen their rate fall from an average of 7.24% in 2008 to around 4.39% in March 2014
If the rate rises what does this all mean to you?
If you are a saver, an interest rate rise is likely to be good news. As the BofE rate goes up, you can expect bank and building society rates to go up too. This could see your savings pot grow more quickly or the income you take from your savings go up as well.
A rate rise will likely mean an increase in your interest rate and, as a result, your monthly repayments (depending on the terms and conditions). If you have a fixed rate mortgage, you won’t be affected if the rates go up during your fixed period, but when the time comes to remortgage your interest rate could jump up quite significantly.
Some experts are predicting that when a rise does come, it will be in steps of 0.25% over the next few years, peaking around 3% in 2017. Now, you might think that this doesn’t sound like much, but you could be unpleasantly surprised.
The Office for Budget Responsibility (OBR) says an increase of 2.5% in the base rate would mean someone with a £150,000 repayment mortgage would have to fork out an extra £230 a month.
Of the 11.2 million mortgage holders in the UK, the OBR says 24% would have to increase their income, cut their spending or refinance their loan to keep affording their payments to afford a 2.5% rate rise. With that in mind, it might be worth using a mortgage calculator to see how much a rate rise really would stretch your finances. Then you can take action.
We have an online mortgage calculator available on this website so you can get an approximate idea of how much your repayments might be. Also get in touch with our offices in Coventry on 02476 592929 or use our contact form or request a free sales valuation.