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Will my interest rate increase on the back of the Bank of England’s decision to raise the Base Rate?

Posted on 09/08/2018, by Joe Jones

Not immediately, no. That’s because the loans in your portfolio are all fixed-rate (the interest rate that each borrower pays is locked for the entirety of the loan term). While your personal interest rate is variable, this is because the individual loans that make up your portfolio will change over time.

What’s more, the interest rates charged to borrowers by Octopus Property (the lending business that make the loans your money gets invested into) aren’t directly linked to the Bank of England Base Rate.

This is unlike more traditional high street lenders who, because they borrow from the central bank, are more likely to immediately pass a rate rise onto borrowers.

Now that’s not to say our rates won’t increase in the future – but the market will take time to adjust to the new cost of borrowing.

We’re naturally keen to ensure that our investment proposition remains as attractive as possible, so will be watching carefully and acting accordingly – but for now: sit tight!

Does the news mean the investment just got riskier?

Some people might be worried that a rise in the cost of borrowing means the risk of borrowers defaulting on their loans increases. There are a couple of things to note here.

Firstly, the cost to borrowers won't increase immediately (see above). This is because all loans that Octopus Property makes are fixed-rate – even if the rates do go up, these would only affect new loans, where the borrower's affordability would be separately assessed.

Secondly, Octopus Property's borrowers are typically experienced property professionals who are used to managing their income with their cost of borrowing; it's a bit different to general consumer borrowing where the risk of default may well rise. And, of course, every loan is secured against a property, just in case.

It's really important you're comfortable with the risks involved when investing with Octopus Choice, though. To learn more, and understand how we mitigate them, head to the risks section of the website.