Yesterday the Bank of England raised its base rate by 0.5% to 2.25% – the highest since the financial crisis in December 2008.
This is a move that was implemented by the central bank to check inflation which is currently at 9.9%. But most experts are concerned that raising the cost of borrowing will add another financial strain to those already burdened by rising cost of living.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdowne, said: “It’s the kind of painful squeeze that borrowers are fearing, with the Bank of England tightening rates to another level – putting pressure on borrowers who haven’t. Have seen this in 14 years.
“It is charging additional interest charges at a time when we can least afford them.”
Indeed, this is the seventh consecutive increase since December and will be another blow to those with tracker or convertible mortgages – which are automatically hit by a base rate hike – and whose fixed rate is about to expire.
Sarah said: “The Bank of England now expects inflation to be lower than previously thought at 11% in November.
“The energy price guarantee It has been instrumental in controlling headline inflation and protecting it from the rollercoaster of international energy prices. However, this was not enough to convince them that rising prices would come under control without another major increase. ,
What does a base rate hike mean for savers?
Sarah said savers would welcome the return of higher rates, but not if they were stuck earning less than half a percent interest in an easy-access account with one of the big high street giants.
Because not all providers are increasing the rates and those looking to find the best rates may have to lock their money for a certain period of time.
According to data from AJ Bell, the top Easy Access Savings Rates It has now increased to 2.1% from 0.65% before the BoE started raising rates.
Laura Suter, head of personal finance at AJ Bell, thinks they will climb further after the latest base rate hike. But she urged anyone saving to be proactive and look for the best possible deal.
She explained: “Most savers will miss out. Millions of pounds will be sitting in accounts earning very little interest. Savers who don’t get nothing – they have to switch to get a better return on their money.
“Almost anyone who has money in a current account, or who has had a savings account for a year or more, can switch and get a better rate.
“If you have £10,000 in cash and it is not earning any interest, you could miss out on £210 per year by not switching to the best easy-access account. Account opening now only takes a few clicks, which means you can get a decent return for 10 minutes of work switching accounts. ,
What will this mean for your mortgage?
For borrowers, especially those with mortgages, another increase would be worrying. Depends on the type of exact effect mortgage near you.
Alice Hahn, personal finance expert at BestInvest, said: “Some families are already struggling to absorb the reality of paying almost 10% more for a basket of goods than they did a year ago – even more mortgages. The rates could likely be a real tipping point for some,” she said.
“Government packages and emergency measures to support struggling families may receive more impetus when [Chancellor Kwasi] Kwarteng presents its mini budget on Friday [he] Their hopes are pinned on growth, but that doesn’t mean household finances aren’t already up to the maximum, forcing some people to budget very carefully to keep their heads above water. ,
So what does this mean to you?
If You’re on a Tracker Mortgage , The increase will be immediate, in line with today’s growth by the BoE. If your deal is about to expire, you are advised to look for fixed rate deals to avoid rate hikes in future.
If you are on a standard variable rate (SVR) mortgage – These rates (which are returned by homeowners when their initial deal expires and they do not resell) generally rise in line with the base rate. If you’re able to switch, you’ll get a better rate than moving into a new deal, so it’s worth talking to a broker about re-plunging.
If you are on a fixed rate – Until your deal expires, you will be protected from a rise in interest rates. Almost three quarters of mortgages are fixed so most borrowers will not see an immediate impact from today’s increase.
If you’re in the early stages of a five- or 10-year deal, you can rest easy, says Ellis. But for those whose rates are expiring, the higher will be less likely to pay.
“If they haven’t acted on their current deal by the expiration date, they need to act very quickly or else they risk ending up at their lender’s standard variable rate – one of the most expensive forms of mortgage lending.” ,” Alice explained.
She continued: “Remember, some lenders allow you to lock in a fixed rate for up to six months before an existing deal expires – something that allows borrowers to forego future rate increases. – So start looking for a new deal now if your current deal expires next spring.