Cost of Living Rises and the Base Rate Follows Suit

The City was pretty shocked back in November when the Bank of England held the base rate at 0.1%. We broke down how that affected first time buyers, buy-to-let and remortgages.

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Today the Bank of England shocked the City again and gave us all an early Christmas surprise as it unexpectedly raised the interest rate to 0.25% – the first increase in over three years. 

The economy has been pretty sluggish over the last couple of years, thanks to the pandemic that has resulted in so many job losses and business closures. With the rise of the new Omicron wave, there was a fear that this sluggishness would continue and the expected spike in Christmas spending would not materialise. 

In fact, the expectation was that a change in the base rate would be held off due to Omicron, however, the drop in prices of global assets in light of the news of the new variant was short-lived and recovery has been swift.

How does the base rate affect saving and borrowing?

The base rate impacts everything when it comes to borrowing and lending, and it has held steady at a record low for some time now. So if you have a mortgage or are planning to get one in the near future – you will be feeling the pinch in your own pocket thanks to this hike. 

If you’re on a tracker mortgage, the average UK mortgage will increase by around an extra £15 per month; on a standard variable mortgage, it will likely be around £10 more per calendar month.

While this sounds like a manageable amount to add to your monthly outgoings, the cost of living is already on the rise, going up 5.1% this year (with experts tipping it to rocket up to 6% next year), the highest it’s been in a decade. We all know that an extra few pounds here and there soon adds up, so none of this is looking positive for the nation’s finances. 

If you’re a saver who hasn’t yet tied themselves into a mortgage, you might think this is good news, as it will boost your savings a little more. But sadly, the increase doesn’t guarantee you a better return as these are still way below the rate of investment.

While it’s good news that new variants are no longer wreaking havoc on the economy (just everything else), it’s bad news for your pocket, and sadly, doesn’t look to be changing anytime soon. Hold on to your hats, we may be in for a bumpy ride!

This could just be the first increase of many so now is the time to sort out a new deal. If you’re a First Time Buyer, book in to get some advice and get in ahead of any more hikes. If you need a new mortgage, we can help you with remortgaging advice so book in to sort out a new deal as soon as you can. You can also still invest, just book in a call with us about available buy-to-let deals. 

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