The Bank of England has increased interest rates by a quarter of a point to 0.75 per cent. This move, only the second in a decade and the first since last November, was widely expected on the back of solid employment growth, steady pay growth and a rise in consumer spending.
Borrowers who are on a fixed rate won’t see any change to their monthly payments. However, the 3.5 million borrowers on variable-rate mortgages will see their mortgage payments rise accordingly, with most lenders set to pass the increase on almost straight away.
If this rate rise means you will struggle to pay your mortgage, then a fixed-rate mortgage could be the answer. Despite much speculation of an August rate rise, fixed-rate mortgages are still very competitively priced, particularly on medium-term fixes, with a number of five-year fixes pegged at less than 2 per cent, although these rates are unlikely to be around forever.
Despite this rate rise, there is no need to panic about the direction of rates in the longer term. Bank of England governor Mark Carney has talked about any rate rises being ‘limited and gradual’, particularly as there is still much uncertainty ahead, particularly where Brexit is concerned.