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What impact will the interest rate increase have on your property?

View profile for Anne Mills
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Last week saw the interest rate rise from 0.25% to 0.5%; the first increase in ten years.  The news has been welcomed by some as a sign of improving economic times, but homeowners have been wondering how this will impact them in particular.  Anne Mills, from the firm's Residential Conveyancing team, explains what the rise means in real terms for homeowners.

Fixed rate versus variable rate mortgage

For those on a fixed rate mortgage, there will be no change at all; it is those on a variable rate mortgages whose monthly payments are determined by the Bank of England interest rate who will see an impact on their monthly payments.  According to Nationwide, those on variable mortgage deals has fallen to a record low of about 40%, down from a peak of 70% in 2001.  On the average mortgage, an increase of 0.25% would increase monthly payments by £15 to £665, equating to £180 per year.

“The low interest rate has worked well to drive the property market following the financial crisis ten years ago, and now we must maintain that customer confidence,” explains Anne.  “Small increases such as this should not impact home owners too drastically, as long as they have planned accordingly, but the Government must keep in mind that any further increases in the future should be done in the same way, small and steady.” 

Interest rate rise for first time buyers and buy to let

“It’s encouraging to see that first time buyers have not been deterred by the rate increase,” continues Anne.  “Research from Yorkshire Building Society conducted before the interest rate rise has shown that only 8% of people were deterred from house hunting.  An area that should be of greater focus for the Government in order to help first time buyers is the issue of Stamp Duty and the significant barrier this has to taking those first steps on the property ladder.”

Stamp Duty saw major changes last year which hit the buy-to-let market the hardest, and so this increase in interest rate will be another blow to landlords.  “Most landlords will be on an interest-only mortgage, and so this increase will see their own monthly repayments rise,” continues Anne.  “Landlords have been met with numerous changes in recent months including reductions in tax relief and stricter regulations, and the significant rise to Stamp Duty if the property is to be used for buy-to-let purposes.  With low interest rates, landlords have historically been able to absorb some of these rising costs, but we may see this have an change on their ability to not pass on the cost to their tenants.”

“There is uncertainty ahead, as we are yet to understand the full implications of Brexit on the property market, but we look at this increase in a positive way, and see it as an opportunity for millions of home owners to evaluate their current mortgage deals, particularly those on a variable, or tracker, mortgage,” concludes Anne.  “There are indications that there will be another 0.25% increase next year, possibly two increases, so now is a good time to review your mortgage deal and make plans for the future.”

To find out more from Anne or the Residential Conveyancing team about the process of buying or selling your home, email or visit their section of the website.


This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.