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| Interest rates: What would a rise mean for you? | Interest rates: What would a rise mean for you? |
| (14 days later) | |
| With the warm weather and the royal wedding boosting the UK economy in May, much speaks in favour of an interest rate rise in the near future. | With the warm weather and the royal wedding boosting the UK economy in May, much speaks in favour of an interest rate rise in the near future. |
| In the three months to May, the economy grew by 0.2% compared with the previous three-month period, the latest figures from the Office for National Statistics (ONS) show. | In the three months to May, the economy grew by 0.2% compared with the previous three-month period, the latest figures from the Office for National Statistics (ONS) show. |
| However, UK wages rose more slowly over the same period, despite a further fall in unemployment. | However, UK wages rose more slowly over the same period, despite a further fall in unemployment. |
| Wage growth, excluding bonuses, slipped to 2.7% from 2.8% in the three months to May, while unemployment fell by 12,000 to 1.41 million. | Wage growth, excluding bonuses, slipped to 2.7% from 2.8% in the three months to May, while unemployment fell by 12,000 to 1.41 million. |
| For some commentators, that means a rate rate by the Bank of England at the next meeting of the Monetary Policy Committee in August is not a foregone conclusion. | For some commentators, that means a rate rate by the Bank of England at the next meeting of the Monetary Policy Committee in August is not a foregone conclusion. |
| But if not next month, then at some point this year, that much-predicted rise may come. | But if not next month, then at some point this year, that much-predicted rise may come. |
| It is likely to be relatively small, from 0.5% to 0.75%, and for the vast majority of householders, not particularly painful. | It is likely to be relatively small, from 0.5% to 0.75%, and for the vast majority of householders, not particularly painful. |
| Nevertheless, there will be both winners and losers. | Nevertheless, there will be both winners and losers. |
| The winners could include 45 million savers, who have seen some interest rate improvements after the previous rise in November. | The winners could include 45 million savers, who have seen some interest rate improvements after the previous rise in November. |
| Those planning on buying an annuity to finance their retirement are also likely to benefit. | Those planning on buying an annuity to finance their retirement are also likely to benefit. |
| But millions of households with variable or tracker rate mortgages are likely to see their payments increase once again. | |
| Variable-rate mortgages | Variable-rate mortgages |
| Across the UK, 9.1 million households have a mortgage. | Across the UK, 9.1 million households have a mortgage. |
| Of these, more than 3.5 million are on a standard variable rate or a tracker rate. | |
| These are the people who would be most affected, as their monthly payments would increase. | These are the people who would be most affected, as their monthly payments would increase. |
| Those on such variable rates tend to be older, and with relatively small outstanding mortgage balances. | Those on such variable rates tend to be older, and with relatively small outstanding mortgage balances. |
| According to the Nationwide, a 0.25% rate rise means someone on a £200,000 mortgage would face paying around an extra £25 a month, or about £300 a year. | According to the Nationwide, a 0.25% rate rise means someone on a £200,000 mortgage would face paying around an extra £25 a month, or about £300 a year. |
| Fixed-rate mortgages | Fixed-rate mortgages |
| The vast majority of new mortgage loans - 96% - are on fixed interest rates, typically for two or five years. | The vast majority of new mortgage loans - 96% - are on fixed interest rates, typically for two or five years. |
| Currently half of all outstanding loans are on fixed rates, equating to about 4.7 million households. | |
| Such rates have already started to rise since November's rate increase. | Such rates have already started to rise since November's rate increase. |
| Of course none of these borrowers would see an immediate rise. | Of course none of these borrowers would see an immediate rise. |
| However, when such borrowers reach the end of their term, they may find they have to make higher monthly payments. | However, when such borrowers reach the end of their term, they may find they have to make higher monthly payments. |
| That said, they could - depending on when they took out their loan - end up on a cheaper deal. Lenders offering fixed rates tend to be especially competitive. | That said, they could - depending on when they took out their loan - end up on a cheaper deal. Lenders offering fixed rates tend to be especially competitive. |
| Savers | Savers |
| When base rates rise, so do savings rates, in theory. | When base rates rise, so do savings rates, in theory. |
| But it depends on the extent to which banks and building societies want to increase their deposits. | But it depends on the extent to which banks and building societies want to increase their deposits. |
| So after November's rate increase, banks were slow to pass on any rise to savers, or they typically passed on a fraction of the full increase. | So after November's rate increase, banks were slow to pass on any rise to savers, or they typically passed on a fraction of the full increase. |
| According to the Bank of England, returns on cash Individual Savings Accounts (ISAs) were little changed December. | According to the Bank of England, returns on cash Individual Savings Accounts (ISAs) were little changed December. |
| Yet they jumped significantly in January, with average returns on cash ISAs going up from 0.36% to 0.94%. | Yet they jumped significantly in January, with average returns on cash ISAs going up from 0.36% to 0.94%. |
| In February and March they held steady at 0.86%, before falling subsequently to 0.63% by the end of June. | In February and March they held steady at 0.86%, before falling subsequently to 0.63% by the end of June. |
| Annuities | Annuities |
| Any rate rise might also good for retirees buying an annuity - a financial product that provides an income for life. | Any rate rise might also good for retirees buying an annuity - a financial product that provides an income for life. |
| Annuity rates follow the yields - or interest rates - on long-dated government bonds, otherwise known as gilts. | Annuity rates follow the yields - or interest rates - on long-dated government bonds, otherwise known as gilts. |
| With the expectation of rising base rates, these yields have also been rising, giving retirees better value for money when they buy an annuity. | With the expectation of rising base rates, these yields have also been rising, giving retirees better value for money when they buy an annuity. |
| Back in November 2011, a 65 year-old buying a joint annuity for £100,000 would have got an annual income of £5,404. Last year, that had dropped by £1,318 to £4,086. | Back in November 2011, a 65 year-old buying a joint annuity for £100,000 would have got an annual income of £5,404. Last year, that had dropped by £1,318 to £4,086. |
| However, by December the figure had risen back to £4,468. | However, by December the figure had risen back to £4,468. |
| Depending on how the market views the likelihood of further base rate rises, annuity rates may continue to creep up. | Depending on how the market views the likelihood of further base rate rises, annuity rates may continue to creep up. |
| According to Willliam Burrows of Better Retirement, a 1% rise in gilt yields translates into an 8% rise in annuity rates. | According to Willliam Burrows of Better Retirement, a 1% rise in gilt yields translates into an 8% rise in annuity rates. |
| But we are still a long way from the heady days of the 1990s, when a £100,000 pension pot would have bought an annual income of around £15,000 a year. | But we are still a long way from the heady days of the 1990s, when a £100,000 pension pot would have bought an annual income of around £15,000 a year. |