Explainer: What does an interest rate rise mean for me? How NI homeowners, first-time buyers, businesses and consumers will be affected

Around 86,000 Northern Ireland homes are estimated to be on tracker or variable-rate mortgages (Pic: Getty Images)

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Around 86,000 Northern Ireland homes are estimated to be on tracker or variable-rate mortgages (Pic: Getty Images)

Margaret Canning Twitter Email

August 04 2022 04:41 PM

With interest rates rising for the sixth time in a row, now from 1.25% to 1.75%, the Belfast Telegraph breaks down what this means for you.

Existing homeowners

The majority of homeowners in Northern Ireland have fixed-rate mortgages, by which the amount they pay off every month is fixed to a particular interest rate, set by their lender.

But about 85,000 are estimated to be on tracker or variable-rate mortgages.

Industry calculations for the UK as a whole suggest that the jump in the interest rate to 1.75% will add £50 to monthly tracker mortgage costs.

There would be a slightly higher increase for those on standard-variable rates.

UK Finance came up with the sum based on average mortgage balances UK-wide.

However, with house prices much lower in Northern Ireland than the UK as a whole, average mortgage balances are also lower, so the addition to monthly payments will be lower than £50.

First-time buyers

Today’s increase shouldn’t put off first-time buyers and should not be seen as a precursor to a property crash in Northern Ireland, some experts have said.

While a base interest rate of 1.75% may seem worryingly high to anyone in their twenties, thirties or forties, it is low compared to standards in the 1990s, when the rate was as high as 13%.

In addition, while property prices in Northern Ireland have been increasingly steadily, they haven’t gone back to the unsustainable highs of the last economic crash of 2008.

That crash was precipitated by the credit crunch, which affected banks’ ability to lend, but the fact that the latest recession has been triggered by energy prices makes a housing market crash less likely.

Businesses

Homeowners aren’t the only borrowers who will feel the pain of the rise in interest rate.

Businesses with loans will also find them more expensive to pay back, and that will be a factor in how they plan for any big spending in their business.

Firms may therefore halt any big expansion plans.

They could also feel the pinch as a result of consumers having less money to spend on discretionary items if they’re paying off more of their mortgage each month — not to mention the extra money they’re already having to find to meet rising energy and food costs.

Consumers

Even if you do not have a mortgage you’ll still be affected by the rise in interest rate.

It’s going to affect the cost of other types of borrowing, such as personal loans, car loans and credit cards.

Savers

The bank’s decisions should also increase the interest rates people earn on their savings.

Lenders usually pass on any interest rate rises, but people may find that any increase of return on their savings is not keeping up with the rising cost of living in general.

Explainer: What does an interest rate rise mean for me? How NI homeowners, first-time buyers, businesses and consumers will be affected

Existing homeowners

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