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What would happen if the interest rate changed?

May 26, 2016

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The prospect of an increase to the UK interest rate is something which constantly crops up in the media – could it go up or down and how might any changes affect you? Here, we explain what happens when the rate changes and How Teachers Building Society will communicate any changes with its members.

What is an interest rate?
An interest rate is the percentage amount that will be charged (mortgages) or paid (savings) on an amount of money you have borrowed or saved.

E.g. If you borrow money from a bank or building society you will have to repay the borrowed amount, plus interest based on the interest rate set by the bank or building society.

If you put savings into a bank or building society account you will earn interest on this money at the interest rate set by the bank or building society. 

Who sets interest rates?
The UK interest rate (also known as the 'base rate') is set each month by the Bank of England’s Monetary Policy Committee (MPC).  Banks and building societies then set their own interest rates – on mortgage lending and savings - based on this rate.

What is the UK interest rate?
The current UK interest rate as of May 2016 is 0.5%. The rate can be checked at any time on the Bank of England’s website: www.bankofengland.co.uk (Displayed on home page as Current Bank Rate).

Mortgages: 

My mortgage is based on a standard variable rate (SVR) – what does that mean?
A Standard Variable Rate (SVR) is a type of variable rate which can go up or down and is set by the lender. The SVR is the lender’s ‘default’ rate – without any limited deals or discounts attached. A lender can raise or reduce its SVR at anytime. SVR tends to be influenced by changes in the UK interest rate, however, a lender is not required to change its SVR in line with base rate changes.

What happens to my mortgage if the UK interest rate changes?
If the UK interest rate increases then many, but not all mortgage payments may go up. 

If you have a fixed mortgage then your rate will not change for the duration of your deal. However, the rate your mortgage reverts onto at the end of the fixed rate deal may go up.

If you have a variable rate mortgage that is linked to the lender’s SVR, then it is likely that the interest rate on your mortgage may rise. However, changes to the SVR may not happen immediately. 

If the UK interest rate decreases then many, but not all mortgage payments may go down in the same way as above – fixed rate mortgages will not change for the duration of the fixed rate, but variable mortgages linked to SVR may see payments decrease.

How will Teachers Building Society let me know about my mortgage?
In the event of an interest rate change Teachers Building Society will write to all affected members in advance - providing notice of any changes to your mortgage rate, payments and our standard variable rate (SVR). 

Savings:

What happens to my savings if the interest rate increases?
If the UK interest rate (base rate) increases then the rate on your savings account may change.

If you have a savings account with a fixed term interest rate then this will not change for the duration of the term.

Other saving accounts could increase their interest rates over time, although this is at the discretion of the banks and building societies.

If the UK interest rate decreases then your savings rate may go down. Again, any savings accounts with a fixed term would remain unchanged but any variable rate may decrease although not immediately.

How will Teachers Building Society let me know about my savings rate?
In the event of an interest rate change Teachers Building Society will write to all affected members in advance - providing notice of any changes that may be made to your savings rates.

If you would like to speak to someone at Teachers Building Society about your mortgage call 0800 378 669 or to speak to an advisor about your savings call 0800 783 2367. 

For more information on the terminology used with regards to your mortgages or savings visit our jargon buster pages. You can find the savings jargon buster here and our mortgage jargon buster here.

How much could you borrow?

Use our handy mortgage calculator to find out how much we may be able to lend you and which ​mortgages may be available to you. 

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