Yesterday the Bank of England raised the base rate by another 0.5% to reach 2.25%, the highest since the financial crisis of December 2008.
It is a move that was implemented by the central bank in an attempt to tame inflation which is currently at 9.9%. But most experts are concerned that the rising cost of the loan will simply add another financial pressure to those already overburdened by the rising cost of living.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “This is the kind of agonizing squeeze that borrowers feared, the Bank of England has tightened rates to another level, increasing the pressure on borrowers, who don’t. have seen rates like this in 14 years.
“It’s accumulating extra interest at a time when we can least afford it.”
In fact, this seventh consecutive hike since December will be yet another blow for anyone with a tracker or variable mortgage – which automatically suffers from base rate hikes – and anyone whose fixed rate is about to expire.
Sarah said: “The Bank of England now expects inflation to spike lower than previously expected, at 11% in November.
“The energy price guarantee was instrumental in controlling major inflation and protecting it from the roller coaster of international energy prices. However, it was not enough to convince them that the price increase will be under control without another sizable increase. ”
What does the increase in the base rate mean for savers
Sarah said savers welcome the return of higher rates, but not if they are stuck earning less than half a percent interest in an easy-to-access account with one of the big giants on the road.
Because not all providers pass on rate increases, and those who want to find the best rates may have to lock their money for fixed periods of time.
According to data from AJ Bell, top easy-to-access savings rates jumped from 0.65% before the BoE started hikes, to 2.1% now.
Laura Suter, head of personal finance at AJ Bell, thinks they will go up further after the last hike in the base rate. But she urged anyone with savings to be proactive and seek out the best possible deal.
He explained: “Most savers will get lost. Millions of pounds will be deposited into accounts that will earn very little interest. Savers who do nothing get nothing: they have to change to get a better return on their money.
“Almost anyone with money deposited in a checking account, or who has had their savings account for a year or more, could get a better rate by switching.
“If you have £ 10,000 in cash and aren’t earning interest, you could lose £ 210 per year by not switching to the best easy-to-access account. Opening an account now takes just a few clicks, which means you could get a decent return for 10 minutes of work by switching accounts. ”
What will this mean for your mortgage?
For borrowers, especially those with a mortgage, another increase will be worrying. The exact impact depends on the type of mortgage you have.
Alice Haine, personal finance expert at BestInvest, said, “With some families already struggling to absorb the reality of paying nearly 10% more for a basket of assets than they did a year ago, the prospect of mortgage rates even more. high levels could be a real game changer for some, ”he said.
“The government package of dispensations and emergency measures to support families in need could receive more momentum when [Chancellor Kwasi] Kwarteng delivers his mini-budget on Friday as [he] he is pinning his hopes on growth, but that doesn’t mean family finances aren’t already strained to the max with some people forced to plan very carefully just to keep their heads out of the water. ”
So what does it mean to you?
If you are on a tracker mortgage – the increase in line with today’s BoE rise will be immediate. If your deal is about to expire, we recommend that you consider fixed rate offers to protect yourself from future rate hikes.
If you are on a standard variable rate mortgage (SVR) – these rates (to which homeowners return when their initial deal ends and they don’t mortgage) generally also increase in line with the base rate. If you’re able to switch, you’ll get a better rate by switching to a new deal, so it might be worth talking to a remortgaging broker.
If you are at a fixed rate – you will be protected from interest rate increases until your agreement expires. About three-quarters of mortgages are fixed, so most borrowers won’t see an immediate impact from today’s hike.
If you’re in the early stages of a five or 10-year deal, Alice says, you can relax. But for those with maturing rates, the prospect of higher repayments is looming.
“If they haven’t taken action before the expiration date of the existing agreement, they have to act very quickly, otherwise they risk ending up with their lender’s standard floating rate, one of the most expensive forms of mortgage lending,” Alice explained.
He added: “Remember, some lenders allow you to lock a fixed rate up to six months before the end of a pending deal, something that allows borrowers to anticipate future rate hikes, so start looking for a new deal. now if your current deal expires next spring.