Following the Bank of England’s Monetary Policy Committee decision to hold base rate at 0.5 per cent, Kevin Mountford, head of banking at moneysupermarket.com said:
“After 28 months of the base rate staying at this historic low, consumers can be forgiven for assuming that this situation will not change anytime soon. However, we know that rates must rise eventually and this leaves many households, especially those sat on variable rate mortgages, with some tough decisions.
“Since the base rate dropped in spring 2009, many consumers have taken advantage of lower mortgage payments and absorbed the savings into every day living costs. Base rate would only need to rise by 0.5 per cent for variable rate mortgage customers to experience a real hit on their finances. Someone with a £150,000 variable repayment mortgage on an average 4.80 per cent SVR would see their monthly payments rise by around £40, not an inconsiderable amount at a time when finances are being hit form every direction. A rise of one per cent would mean an increase of around £80 every month, an unmanageable amount for many UK households.
“Consumers looking to avoid a sudden jump in mortgage repayments may want to consider switching to a fixed rate product. Average rates across most product terms have been dropping recently with average fixed rates at a historic low. Any rises in base rate will undoubtedly lead to rates creeping up again so borrowers need to balance the short term savings over longer term benefits. Whilst fixing would protect them against sudden repayment rises, should rates remain low for a considerable amount of time or rise very slowly, they will end up forking out more in repayments in the long run.
“Savers face a similar choice at the moment, namely to lock their money away in a fixed rate product now or wait and hope that saving rates rise soon. If you are concerned about tying up your spare cash for a longer period then you can still get excellent rates on easy access accounts with the best rates currently over three per cent – six times that of base rate.”
Source : Moneysupermarket.com
