Bank of England Pushes Up Interest Rates

It was the move that many experts had been predicting for some time. Yesterday the Bank of England Monetary Policy Committee wrapped up its monthly meeting and revealed that the interest rates in the UK were to be pushed up from 4.75% to 5%, a rise of 0.25%.

Although many consumers were already prepared for this rise because of predictions made be financial experts and professionals, it is still likely to hit hard in the run up to Christmas.

The rise in interest rates will not only affect those that are paying off a mortgage, but will also affect the amount of interest being paid by those with secured loans, credit cards, variable rate loans, and other debts that have variable interest rates. With many newer homeowners already struggling with mortgage repayments because of the amount they have had to borrow by way of a mortgage in order to cover the high property prices, this could spell trouble.

Those with interest only mortgages will have to find more each month to cover the rise in interest rates than those on a repayment mortgage, with a typical mortgage of one hundred and ten thousand pounds costing interest only consumer around twenty three pounds more each month, and costing repayment mortgage consumers around sixteen pounds a month more.

The Royal Institute of Chartered Surveyors had expressed concerns over a repeat of the price crash that occurred two decades ago, and officials from the Institute stated that this could be prevented with this current rise in interest rates, and another early next year. The Bank of England also issued a statement, part of which read: “… the committee judged that an increase in bank rate of 0.25 percentage points to 5% was necessary to bring CPI inflation back to the target in the medium term.”

Alisdair Milton
10th November 2006

More Information:

• Why Does The Interest Rate Of Your Mortgage Change?
  The biggest difference between a mortgage and other types of loan is the fact that the interest rate changes throughout the term of the loan. Why is this? And which type of interest-rate arrangement is best?
• Variable Mortgages
  Variable mortgages are for those whose incomes are not particularly stretched. What are the ups and downs of entering into a standard variable mortgage?