MILLIONS of households face huge bill hikes as interest rates are set to rise again today.
The Bank of England (BoE) is expected to increase the base rate by 50 basis points today.
Economists expect that the Bank’s base interest rate will go from 3% to 3.5% in December, its highest for more than 14 years.
It will also be the ninth time in a row that the BoE has hiked interest rates.
Last month the bank opted for a 0.75 percentage point rise – the highest single increase since 1989.
The move will make the cost of borrowing, including loans, credit cards and mortgage repayments more expensive.
High-street banks use the BoE base rate to work out the interest rates it offers to customers.
It means there could be more misery for households who are already grappling with a cost of living crisis.
Although it’s 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 the UK’s inflation rate fell to 10.7% yesterday, down from 11.1% in October.
Inflation is a measure of how the price of goods and services has changed over the past year.
So, prices are still rising, but at a slower rate than last month when they were rising at their fastest rate in 41 years.
Here are the main ways that today’s announcement could affect your finances.
Mortgage rates rising
Millions of households could face £3,000 a year bill hikes if interest rates to rise as expected.
People with fixed-rate mortgage deals due to expire at the end of 2023 face £250 a month bill hikes when they are forced to refinance onto a higher rate.
Martin Lewis said on ITV’s Good Morning Britain yesterday: “Anybody coming off a cheap fix at the moment will likely be paying around 3% more than they were paying previously.
“That percentage rise equates to £160 more per month per £100,000 of mortgage.”
But the exact amount that your mortgage repayment will rise by will depend on the size of the mortgage, the rate you fixed at and the loan-to-value when you remortgage.
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.
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.
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.
Moving to a fixed rate mortgage could help you avoid future rises by locking in a lower rate.
A new forecast today on how much interest rates will rise next year could possibly bring some relief to mortgage bills.
At its last interest rate meeting in November, the Bank warned that interest rates would hit a maximum of 4.6% next year.
If this forecast is revised to a lower level it may open the way for some lenders to reduce their mortgage rates.
Last month, several lenders began cutting the rates on their standard variable and fixed-deal mortgages in response to the revised forecast announced by the Bank.
Credit card and loan rates could rise
The cost of borrowing through loans, credit cards and overdrafts could go up too, as banks are likely to pass on the increased rate.
Many big banks – like Lloyds Bank, 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.
Savers might get better rates
Savers could get some relief as banks continue to battle it out by offering market-leading interest rates.
A rate rise is generally good news for savers, especially after a long stretch of getting very low rates on their money.
Along with low rates, high inflation can erode away the value of any savings you have.
So if you have £100 in the bank this year and inflation is 10%, the real spending power of that money is reduced to £90 next year.
Another rate rise could see banks pass on higher rates to savers – though they are usually much slower to act than with passing on higher rates for borrowing.
This means savings rates are more likely to edge up slowly rather than change immediately.
Anyone currently getting a low rate on easy access savings could find it’s worth looking around for a better rate after any rate rise and moving their money.
