The winners, and the many losers, from higher interest rates
06 November, 2017, 02:14 | Author: Manuel Hopkins
Lloyds, Barclays, RBS-NatWest, Santander and HSBC have so far defied calls from the Prime Minister and Bank of England governor Mark Carney to pass on the interest rate rise to savers.
The high inflation and sliding real earnings, both fueled by a weak exchange rate, would threaten to destabilize consumer spending, the bedrock of the economy.
When will mortgage rates go up?
A rate rise would normally boost the pound, but the note of caution about future increases sent sterling down sharply.
How will it affect you if you have a fixed rate mortgage?
For example, people who are now using two-year fixes will see an increase in their payments once this has come to an end.
"The 0.25% lift in the base rate will likely be passed on to borrowers on variable-rate mortgage deals nearly immediately-with a material effect", said Simon Gammon, managing partner at Knight Frank Finance. Santander, for example, is likely to raise its SVR from 4.49% to 4.74%.
The consensus in the City is that there will be at least another 0.25% rate rise next year, and possibly a second.
Retail banks tend to pass on any change in the BoE rate to its customers. A lot can happen between now and then, and little of it with Carney's control.
According to Mr Seymour, someone on a tracker mortgage now paying 3.49% over 30 years on a £460,000 property - the average cost of a home in Jersey - and for which they paid a ten per cent deposit, will see their monthly payments increase by £59 a month. After the 2007/08 crash, the Financial Conduct Authority enforced strict affordability rules to ensure that borrowers could withstand rate rises.
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Any rate rise knocks confidence in the property market, although no one can know by how much.
The reluctance is at odds with comments from Theresa May's official spokesman, who said on Thursday: 'Following the rate rise, we would expect to see higher interest rates to be passed on to savers'.
What are the risks of further mortgage rate rises in 2018?
I have a buy-to-let mortgage.
Nearly four million households face higher mortgage interest payments after the rate rise.
She would still recommend to clients thinking about borrowing to lock into a fixed-rate mortgage given this is likely the first of several gradual increases to the base rate, she said.
Will savings rates finally begin to improve?
However, he added: 'The impact of this decision will be to raise the cost of mortgages for many borrowers who have never previously experienced a rate increase.
But the Bank also said its forecasts are based on the assumption of a "smooth adjustment" of the United Kingdom economy to Brexit, something that has been thrown into increasing doubt by the failure of the Government to make any substantive progress in its Article 50 divorce negotiations with the European Union. In Nationwide's case, it said the "majority" of savers will see improvements.
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