Don’t be worried by the interest rate hike – say mortgage experts

 

The Bank of England increased interest rates for the first time in a decade this week. The base rate went up by a quarter of one per cent to 0.5 per cent. But what will be the impact on new home buyers and those with existing mortgages?

There’s no need to worry just yet, say the experts. They do not expect the increase to have a significant impact on most UK households.

Nationwide’s chief economist Robert Gardner said: “The proportion of borrowers directly impacted by a rate rise will be smaller than in the past, in part because the majority of new mortgages in recent years were extended on fixed rates. The share of outstanding mortgages on variable rates has fallen to a record low of around 40 per cent, down from a peak of about 70 per cent in 2001.

“A 0.25 per cent increase is likely to have a modest impact on most borrowers who are on variable rates. On the average mortgage, an increase of 0.25 per cent would increase monthly payments by £15  – equivalent to £180 a year.”

This is not to say that rise will be welcome news for many. Household budgets are under pressure from the fact that wages have not been rising as fast as the cost of living. In real terms wage rates are still at levels that were prevailing in 2005.

There will be a little ‘pain’ but, on the whole, the message to UK borrowers is not to panic.