New official figures have revealed that the UK economy grew at a much faster rate than expected from July through to September. That’s good news, right? Well, not exactly! The faster than expected growth has caused the Bank of England to consider raising the interest rate to 0.5%.
This new change could be introduced as early as next week. So, what would an interest rate hike mean in terms of borrowing and how could it affect your loans?
Increased mortgage repayments
One of the major changes that’s going to occur if interest rates are increased, is mortgage repayments will also rise. Those who are locked into a fixed mortgage deal won’t need to worry. However, those on a tracker mortgage will be instantly affected.
So, how much would this affect what you pay on a monthly basis? Well, homeowners who have a £250,000 mortgage at 2% interest for 25 years, would see their repayments increase by £30 per month. Anyone who is on a higher interest mortgage would therefore experience much more significant changes in their monthly repayments.
How will it impact existing loans?
If you have existing loans, you may be worried about how the rate rise will affect you. The good news is, most personal loans are provided on a fixed rate basis. This means, even if the interest rate does increase, it won’t affect your current loan payments.
Of course, not all loans are provided on a fixed rate basis, so this is something you’ll need to check. If you are on a variable rate loan, your payments will increase, much in the same way as mortgages. However, they’ll increase more given that the standard interest rates on loans are higher than mortgages. Again, this isn’t something most existing borrowers will need to worry about as the majority of loans do feature a fixed rate.
What about future borrowing?
So, most existing loans won’t be impacted by the interest rate increase. However, future borrowing will be higher. This means, if you think you’ll need to apply for a personal loan in the not too distant future, now would be the best time to do it. You can lock in current interest rates when applying through companies such as Ocean Finance.
If the interest rate increase does go ahead, it is going to have a negative impact on those with variable rate mortgages and for future borrowers. However, as most homeowners are on a fixed deal these days, it shouldn’t have too much of an impact on the housing market.
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