In 2007 Bulgaria and Romania joined the European Union, Lewis Hamilton got his first drive in Formula 1 partnering with Fernando Alonso at McLaren, the final book in the Harry Potter series was published and England played their first match at the new Wembley Stadium.
It was also the year in which the Bank of England last raised interest rates, when they went up by 0.25%.
That all changed on 2 November 2017 when The Bank of England voted to raise UK interest rates for the first time in over a decade, to 0.5%.
So how could an interest rate rise of 0.25% affect you?
In the short term, both borrowers and savers could see a modest effect on finances. Savers are likely to be pleased with the welcome boost even if the increase is small. Borrowers however will be less pleased as they could see their mortgage repayments rise.
Impact on borrowers
Higher interest will mean that those on Standard Variable Rates (SVR) or Trackers Rates will see their mortgage repayments rise. On a mortgage of £125,000 an increase of 0.25% would result in payments increasing by £15 a month (£185 a year).
Those with larger mortgages will in turn see a larger payment increase. Those with a mortgage balance of £250,000 will see their monthly payments increased by £31 (£369 a year). However, the 57% of borrowers on a fixed rate deal will be unaffected during their fixed term.
These figures might not seem much in isolation, but borrowers should also be aware that higher interest rates could impact other borrowing, like credit cards, car credit or unsecured loans.
There’s also the prospect that rates could continue to rise over the long-term. If we hit 1%, the monthly repayments on a £125,000 mortgage would go up by £78.48, and £161.69 if the rate doubled to 2%.
If you’re concerned about the impact of higher interest rates on your mortgage repayments you may want to consider a fixed-rate deal, especially if you’re currently on SVR. Remember, if you’re already on a fixed-rate deal you may face higher repayments when the term ends. Make sure you diarise when that’s due to happen and get in touch so that we can discuss whether the best option is to remortgage.
Impact on savers
According to research there’s no standard savings account on the market that can outpace inflation, in fact the average easy-access savings account is currently paying 0.35% interest.
If the Bank of England increases the base rate savers may be able to find better returns to keep up with rising inflation. However, as with mortgages, those already on a fixed rate will not see higher rates until the term ends.
Whether you’re a saver or a borrower, we’d love to help you make more of your money. Get in touch to find out how.
Your home may be repossessed if you do not keep up repayments on your mortgage.