In August 2016, the Bank of England cut the interest rate to 0.25%. How does this affect you and your personal debt? We at Debt Advisory Services (Scotland) share our thoughts.
The biggest debt that most people have is the mortgage on their home. If you have a base rate tracking mortgage and your bank or building society decides to pass on the cut, it’ll mean a deduction in your monthly mortgage payments. For every £100,000 of mortgage debt you have (assuming a 25-year term), you’ll save about £17 a month.
If you have a fixed rate deal, sadly the benefit of the rate cut won’t apply to you. If you are on a fixed rate deal and you’re outside the period where you can be charged an exit fee, many are advising that now is the time to look around and lock in this historically low rate.
There’s next to no chance that your provider will cut their rates on any unsecured loans you have at the moment. For credit cards, there is a slight chance that some will cut, but don’t expect them to rush to do so.
The real benefit is to be had by consumers looking to take out a new secured loan or credit card. Since the financial crash of 2008, personal loan and credit card rates have dropped to levels not seen within living memory. This rate cut is likely to be seen having an effect on headline new loan interest rates in the next two to three months.
Adverse lender interest rates have also dropped in the last 12 months, but this has been down more to a crackdown by government and financial watchdogs than what it is going on in the wider credit market.
The bigger picture
Interest rates are negative (yes, negative) in a quarter of the world’s economies at the moment. It’s not impossible that the Bank of England rate will go even lower.
However, following the Brexit vote, the pound fell sharply against the dollar and the euro, making imports more expensive. That means inflation may be on its way to the UK. If that’s the case, interest rates may go back up.
Debt Advisory Services (Scotland), a private limited company, helps its valued customers break the cycle of debt. To talk to us about how we can help you, please call us free on 0800 011 2322 to contact us.