RATE RISE
Mortgage warning for millions as Bank of England hikes interest rates AGAIN – what it means for you
MILLIONS of homeowners will face higher mortgage repayments as the Bank of England hiked interest rates again.
The central bank has unexpectedly increased its base rate by 0.5 percentage points, the sharpest increase since February.
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It means a rise from 4.5% in May to 5% in June, the highest in just under 15 years since September 2008.
It is 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 opted for a 0.25 percentage point rise from 4.25% to 4.5%.
The increase today was expected by some economists after yesterday's shock inflation figures, but most experts had predicted policymakers may have opted for a smaller rise of 0.25 percentage points.
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Responding to the rapid increase, Rishi Sunak vowed to "remain steadfast" in his mission to tackle high prices.
The Bank has come under fire but has been jolted into a bigger than expected rate hike after official figures showed on Wednesday that stubborn inflation is not falling from its 8.7% rate.
It comes after the BoE chief Andrew Bailey has been blasted for being too slow to act to combat inflation.
Writing in today's Sun Trevor Kavanagh argued that Andrew Bailey has failed to control inflation.
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He said: "Bailey refused to act, failing in his duty as head of Britain’s independent central bank to peg inflation at or below 2% — or explain why not to the Chancellor of the Exchequer in writing."
While, ex-Business Secretary Jacob Rees-Mogg accused Mr Bailey of "burying his head in the sand".
He told the Sun: "Having been too slow at the start, they now risk an overreaction that risks damaging economic consequences.
"But it's extraordinary arrogance for the Bank to blame everything but its own monetary policy."
Former Education Secretary Kit Malthouse said Mr Bailey’s predecessor Mark Carney left the Bank “complacent and sluggish”.
It comes amid growing calls for the Government to do more to help mortgage borrowers who are set for a big jump in their monthly repayments.
High-street banks use the BoE base rate to work out the interest rates it offers to customers.
The move today means the cost of borrowing, including loans, credit cards and mortgage repayments will be more expensive.
Interest rate rises could see 1.4million mortgage holders lose at least a fifth of their disposable income, according to the Institute for Fiscal Studies (IFS).
Plus, by the end of 2023 more than a million households (4% of all UK households) will run out of savings because of higher mortgage repayments, according to the the National Institute of Economic and Social Research.
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 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.
In a letter to the Chancellor Jeremy Hunt, explaining why inflation remained far above target Mr Bailey said: “Bringing down inflation is our absolute priority.
"The Monetary Policy Committee will do what is necessary to return inflation to the 2% target sustainably in the medium term.”
Signalling that more rate rises could be on the way the Bank said: “If there were to be more evidence of more persistent pressures, then further tightening in monetary policy would be required.”
Chancellor of the Exchequer Jeremy Hunt described high inflation as "destabilising force" that eats into pay cheques.
He said: "Core inflation is higher in 14 EU countries and interest rates are rising around the world, but the lesson from other countries is that if you stick to your guns, you bring inflation down.
“Our resolve to do this is watertight because it is the only long-term way to relieve pressure on families with mortgages. If we don’t act now, it will be worse later”.
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 when rates go up.
According to figures from UK Finance, the 0.5 percentage point increase could add £47.43 to the average monthly tracker mortgage payment.
There are 639,000 residential tracker mortgages outstanding.
Homeowners on variable rate mortgages might not see their repayments go up straight away, but they will likely increase shortly after interest rates are hiked.
Although some lenders do opt not to pass the rise onto borrowers.
Leeds Building society has already opted not to pass on the rate rise to its SVR 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, the 0.5 percentage point increase could add £30.28 to average monthly repayments, 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.
According to figures from Moneyfactscompare.co.uk, released today, the average two-year fixed residential mortgage rate is 6.19% up from 6.15% the previous day.
While the average 5-year fixed residential mortgage rate today is 5.82%, up from an average rate of 5.79% on the previous working day.
David Hollingworth, associate director at L&C Mortgages said the increase of the rate today is hoped to be "the medicine to treat high inflation".
He said: "Higher rates will of course not leave a pleasant taste for borrowers that will see a further rise in their payments."
Mr Hollingworth added that borrowers who took out a tracker mortgage in the wake of the mini-Budget will likely be looking to fix following the consistent rises.
"Rather than being near to the peak, today’s increase may not be the last in the face of stubborn inflation," he said.
While those already in a fixed rate will be looking ahead and possibly looking to get a deal in place ahead of the end of their fix.
He continued: "Given the speed of change in rates there’s little time for decisions and borrowers will need to move fast as rates continue to come and go with little notice.”
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.
Adam Thrower, head of savings at Shawbrook: “Interest rates are soaring to new heights, presenting savers with an exceptional opportunity they haven't witnessed in over a decade.
"It's a remarkable ascent and today’s savings accounts are offering good returns for those willing to seize the moment."
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.
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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.
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