Base Rate Increase
It probably does not come as a surprise to people but the Monetary Policy Committee of the Bank of England met today (2nd November 2017) and announced that the base rate was to increase by 0.25% to 0.5%. This news will no doubt disappoint many of those people and businesses who are borrowing money as many are likely to find that their interest charges and therefore their repayments are likely to increase.
However, many savers are likely to have a smile on their faces in anticipation of interest rates rising on certain interest bearing savings accounts. Many retired people who are not borrowing but have monies in savings accounts will find the increase of benefit if the financial institution that he or she has money invested in a savings account increases the interest rate on those savings.
In monetary terms, this means that someone borrowing 150,000 on an interest only basis will pay an extra £31.25 per month in interest. We are sure that you will agree that is not a small sum of money that the borrower will have to find extra each month.
With regard to savings interest, someone with say £50,000 in an instant access savings account with a bank or building society would see their gross interest increase by £10.41 per month assuming that the financial institution raises the interest rate it is paying savers on its instant access savings account by 0.25%.
This is the first rise in the base rate for over 10 years so there are no doubt many people who are borrowing money to buy their home who will not have seen the effect of a rise in interest rates. No doubt it will concern quite a few people.
It will be interesting to see if the Bank of England feels it necessary to raise the base rate again in the coming months. There will also be many business people who are going to be affected as some will have overdrafts and commercial mortgages/business loans that are on a variable rate of interest so their interest charges are likely to go up.