Bank of England hikes rates AGAIN to 0.75% adding hundreds to household bills

MILLIONS of households will see hundreds of pounds added on to their outgoings as the Bank of England has hiked interest rates for the third time in as many months.

The Bank today put the base rate of interest back up to its pre-Covid level of 0.75%, heaping more misery on struggling households.

An interest rate hike means borrowing gets more expensive, and millions of homeowners on a variable or tracker mortgage will see their repayments go up as a result.

It comes as households are already grappling a brutal cost of living crisis, and in a week where petrol prices have hit a string of new highs.

The Bank of England typically puts rates up to try and curb inflation, which hit a 30-year high of 5.5% in January and is predicted to rise further.

Increasing interest rates is like a lever for slowing down inflation - but it means the cost of borrowing increases.

This means that consumers and businesses have less money to spend, and in theory, as demand for goods and services fall, so should prices.

The base rate was lifted from the historic low on 0.1% to 0.25% just before Christmas and a further hike to 0.5% in February.

The hikes, which return the rate to the same level as before the pandemic, are an effort to tackle rising inflation which the Bank of England has a target of 2% for steady economic growth.

But the bank warned that inflation could soar further, with the invasion of Ukraine by Russia leading to further large increases in energy and other commodity prices including food prices.

Last month the central bank warned that inflation could hit just over 7% by April, but now it has said it could hit 8% or higher this year.

It's a blow to struggling Brits who already face an increase in National Insurance, council tax bills and energy costs.

The latest hike could see costs rise further for households.

A rate hike can push up the cost of borrowing via mortgages and loans.

But savers could get better rates on their cash pile - if banks decide to pass on the rise.

Steven Cameron, pensions director at Aegon said; “The Bank of England has voted for another 0.25% interest rate hike to 0.75%, the third consecutive increase and highly unlikely to be the last.

"With the cost of living crisis looking set to accelerate, piling pressure on household finances, this will be bad news for borrowers but may offer a glimmer of hope to cash savers."

All eyes will be on chancellor Rishi Sunak and his mini Budget next week to see if it will include any steps to alleviate the cost of living squeeze, he added.

Mortgage repayments

Many homeowners should expect to pay more on their mortgage repayments when interest rates go up.

That's if you are on a variable rate, AJ Bell head of personal finance Laura Suter said - these homeowners will see their interest rate go up.

Tracker mortgages are linked to the Bank of England base rate - which means you will see an immediate impact on your mortgage repayments.

Homeowners on variable rate mortgages won't see their repayments go up straight away, but are likely to soon.

After last month's rate hike major high street banks said they would increase rates within weeks.

The latest data from UK Finance shows that around a quarter of residential mortgages are variable rates.

This means the rate hike will affect around 2.2 million borrowers if their bank follows suit.

Someone with a £250,000 variable rate mortgage would pay an extra £384 a year, Ms Suter said.

This could be higher later on if interest rates rise again this year - and experts predict they will.

"The current market expectations are that the base rate will rise four more times this year, taking it to 1.75% before the end of 2022," she said.

"If this is the case, homeowners with £250,000 of borrowing will have to pay an extra £1,956 a year, or £163 a month."

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.

Anyone on a fixed rate mortgage now won't see their repayments change.

But once they reach the end of their deal they could find rates are higher than when they previously locked in.

An interest rate rise can make remortgaging more expensive in the future.

Here's how you can find and compare the best home loans.

If you are unsure what type of mortgage you have, check your mortgage terms and conditions in your original mortgage offer document.

Loans and credit card bills

Most unsecured borrowing such as car finance won’t usually be affected by an interest rate change.

This is because you agreed to pay a fixed rate of interest when you took out the loan.

Loan rates could go up for new customers though and you could find they are higher than when you last looked.

You might find that the interest rate on your credit card or overdraft will rise along with a Bank of England rate hike.

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 that could happen today - 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.

If you had a balance of £2,000 on your credit card, a rate rise of 0.25 percentage points rate rise would add an extra £5 onto your bill per year.

If you had a balance of £8,000, this would increase by an extra £20 a year.

Hargreaves Lansdown personal finance analyst said banks tend to rise rates when any Bank of England rate hikes happen.

"In February, we had a flood of new cards at much higher rates, so that the average credit card rate jumped to 26.3% in the first three months of this year," she said.

Your lender should let you know about any increase in your credit card or overdraft rate before it goes up.

Tax bills

Rising Bank of England rates could have a knock-on effect on how much tax you are paying.

That's because the government will have to pay more for its borrowing.

This cost could be passed down to the tax payer - such as a rise in National Insurance.

National Insurance is already going up by 1.25 percentage points in April, adding hundreds to workers' tax bills.

Any further increase would be slammed which means it is more unlikely the government will chose to do this - but it is an option.

It is not known exactly which - and if - taxes will go up.

But the Treasury has previously considered measures such as cutting pensions tax relief for high earners, increasing capital gains tax and introducing a digital sales tax for online retailers.