Mortgage warning for millions as Bank of England set to hike interest rates AGAIN today – what it means for you
MILLIONS of households face bill hikes as interest rates are set to rise again today.
The Bank of England (BoE) is expected to increase its base rate by 0.25 percentage points.
Economists expect that the Bank’s base interest rate will go from 4.5% to 4.75% in June, its highest for more than 15 years.
It would be also the 13th time in a row that the BoE has raised rates since December 2021 when they were at historic lows.
Last month, the Bank also opted for a 0.25 percentage point rise from 4.25% to 4.5%.
High-street banks use the BoE base rate to work out the interest rates it offers to customers
The move would make the cost of borrowing, including loans, credit cards and mortgage repayments more expensive.
Interest rate rises could see 1.4 million mortgage holders lose at least a fifth of their disposable income, according to the Institute for Fiscal Studies (IFS).
But the hike is good news for savers as they may get better rates on their nest egg.
Lifting interest rates is meant to encourage people to save, rather than spend, which in theory should help bring rampant inflation under control.
It comes as fresh figures yesterday revealed the UK’s rate of inflation remained the same in May as in April, at 8.7%.
However, core CPI inflation, which excludes energy, food, alcohol and tobacco, stood at 7.1% in May, up from 6.8% in April.
Inflation is a measure of how the price of goods and services has changed over the past year, so prices are still rising but just at the same rate as they were the month prior.
At last month’s Monetary Policy Committee (MPC) meeting the group of BoE experts that sets the rate, forecast that inflation is expected to fall to around 7% by the middle of the summer.
It will fall to 5.2% by the end of this year and 3.4% by next summer.
This is thought to be due to energy costs dropping, but food prices are still expected to remain higher for longer.
Here are the main ways that today’s announcement could affect your finances.
Mortgage rates rising
Mortgage rates have been rising with the BoE’s consecutive rate rises since December 2021.
But the exact amount that mortgage repayments rise will depend on the type of mortgage you have.
If you’re on a fixed-rate mortgage, the increase won’t immediately affect your payments.
But other mortgages, such as a tracker or standard variable rate (SVR) mortgage, could be impacted straight away.
Tracker mortgages are linked to the BoE base rate – which means you will see an immediate impact on your mortgage repayments if rates go up.
According to figures from UK Finance, a 0.25 percentage point increase in the base rate could add £23.71 to the average monthly tracker mortgage payment, while a 0.5 percentage point increase could add £47.43.
There are 639,000 residential tracker mortgages outstanding.
Homeowners on variable rate mortgages wouldn’t see their repayments go up straight away, but they would likely increase shortly after interest rates are hiked
Although some lenders do opt not to pass the rise onto borrowers.
Your bank should tell you about a change to your SVR before it goes up.
SVRs are generally higher than fixed rate deals, so if you’re on one then you’re likely already be paying more than you need to already.
For someone on an SVR mortgage, a 0.25 percentage point increase could add £15.14 to average monthly repayments while a 0.5 percentage point increase could add £30.28, based on the mortgages currently outstanding.
But the exact amount depends on your borrowing and your loan-to-value
Some 773,000 residential SVR mortgages are outstanding.
The bulk of homeowners are on fixed-rate products, although around 2.4million deals are due to end between now and the end of next year.
A new forecast today on how much interest rates will rise this year could possibly bring some relief to mortgage bills.
According to figures from Moneyfactscompare.co.uk, released yesterday, the average two-year fixed residential mortgage rate is 6.15%.
While the average five-year fixed residential mortgage rate is 5.79%.
While anyone on a fixed deal won’t see a change now, they could find rates are higher when they look for a new deal.
What does it mean for credit card and loan rates?
The cost of borrowing through loans, credit cards and overdrafts could go up too, as banks are likely to pass on the increased rate.
After consecutive rate rises by the BoE, interest rates on credit cards and personal loans already hit a record high in December, according to Moneyfacts.
Many big lenders – like Lloyds, MBNA, Halifax and Barclaycard – link their credit card rates directly to the Bank of England base rate.
That means their credit card rates will hike automatically in line with any changes to interest rates – but you’ll be given notice before this happens.
You can check the terms and conditions of your credit card to see if the rate can go up when the base rate does.
Certain loans you already have like a personal loan or car financing will usually stay the same, as you’ve already agreed on the rate.
But rates for any future loan could be higher, and lenders could increase the rate on credit cards and overdrafts – although they must let you know beforehand.
You can cancel a credit card if you want and will have 60 days to pay off any outstanding balance.
What does it mean for savers?
The hike is likely to be good news for savers as banks will continue to battle it out to offer market-leading interest rates.
A rate rise is generally good news for savers, especially after a long stretch of getting very low returns.
Savers looking to make the most of their deposits can expect to get more back after savings rates rise.
Traditional high-street banks have been accused of resisting passing on higher interest rates to savers in recent months.
But savvy savers can still get decent returns on their deposits by looking away from traditional high street banks and scouting for accounts offered by challenger banks.
Anyone currently getting a low rate on easy-access savings might want to look around for a better rate.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk