Bank Of England Raises Base Rate
On the 2nd August 2018, the Bank of England announced that the base rate was to increase by 0.25% – from 0.5% to 0.75%. The rate was last increased on 1st December 2017 – from 0.25% to 0.5%. Such a rise will no doubt have an impact on the repayments that many people and businesses are making on certain types of lending products.
Over the years, the base rate has varied from as low as 0.25% up to a maximum of 17%. Apparently, the Bank of England is of the opinion that, ideally, the base rate should be around 2% to 3% so it will be interesting to see if we continue to witness small rises in the base rate over the next two or three years.
So, what sorts of lending products may be affected by this latest increase in the base rate?
Well, it will not come as a surprise for us to firstly mention residential mortgages here in the UK. Those customers on fixed rates of interest with their mortgage lender will not see any change in their monthly repayments although they will need to bear in mind that, when their existing fixed rate comes to an end, they may find that there monthly repayments are going to increase. Those on tracker and variable rate mortgages are likely to see their monthly repayments increase once the banks and building societies make the decision to pass on the base rate rise to customers. It will be interesting to see if other personal lending products such as personal loans, overdrafts and credit cards see their interest rates go up.
On the commercial and business lending front, those businesses that are on fixed rates of interest will, presumably, not see their repayments change during the period of the fixed rate which may well be for the full term of the borrowing. Those that are borrowing on a variable rate of interest such as on an overdraft facility may well see the amount of interest that they pay rise in the short term.
Press comment from the business sector has not been a positive one following the announcement by the Bank of England to increase the base rate and homeowners will not be happy nor may be people who are renting as landlords that have certain types of buy-to-let mortgage may feel it necessary to increase the rent. Obviously, many savers will be pleased to see a rise in the base rate.