Interest rates have RISEN for the first time in the last decade from 0.25 per cent to 0.5 per cent, we take a brief look at what this could mean for you.
Almost four million householders face higher mortgage interest payments after the rise, with the main losers being households with a variable rate mortgage. According to UK Finance, the average outstanding balance is £89,000 which would see payments increase between £11 and £12 a month. Poorer families with children will expect a significant fall in their real income.
Lee Wild, Head of Equity Strategy at Interactive Investor says it would hurt families as they’re already in a fragile situation,
“The timing isn’t great for families struggling with the lag in wages growth to inflation, and who are now beginning to plan their Christmas budgets. Brexit is already causing many to rethink their spending, so rate-setters must tread carefully to avoid a policy mistake further down the line”.
Mark Carney, a Bank of England governor, says Britain’s exit from the EU is the biggest factor determining the country’s long-term economic prospects, however, the Bank could re-calibrate monetary policy if a Brexit deal is agreed.
Although the homeowners are taking a hit, savers are ‘seeing better returns from saving accounts’. So every £10,000 that is saved, they gain an extra £25 per year on top of their original 0.25 per cent.
Governor Carney, says he expects all providers to increase return for savers after the Bank decided to raise their interest rates.
“Banks did pass on the cuts to their depositors, and we expect competition to push it in the other direction. Obviously we will watch it closely.”
Although this is a step in the right direction for savers, there is still a huge void between the returns available on the high street and those offered in the alternative investment sector. For instance:
Asset Life are a commercial finance company that offer bonds over a 3 year term with a fixed interest rate of 8.75% per annum – which may be considered higher than the products found on the high street market.
The directors believe these opportunities offer potentially strong capital growth and income which in turn is returned to our fixed income plan holders who can enjoy attractive rates of return through this very straightforward method.
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*The contents of this article is not to be deemed as financial advise but for information purposes only. As with any similar investments there could be a risk to your capital.