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Mortgage warning for millions as Bank of England hikes interest rates again – what it means for your money
MILLIONS of homeowners are braced for more mortgage misery as the Bank of England has hiked interest rates to a new 15-year high.
The Bank’s Monetary Policy Committee (MPC) has lifted the base rate by 0.25 percentage points to 5.25% today.
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The last time it stood at 5.25% was in March 2008.
The Bank of England base rate is often used by high street banks to set the rates it offers to customers on things like loans, savings and mortgages.
The Bank said interest rates may need to stay higher for a while longer in order to bring inflation back down to its 2% target - but said there won't be a recession.
Today's rise marks a smaller increase than the half-point rise pushed through at the last MPC meeting in June.
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Today's rise marks a smaller increase than the half-point rise pushed through at the last MPC meeting in June.
This is because there are signs that inflation has turned a corner.
The Bank said it expects the Government to meet its promise to halve inflation by the end of the year.
The Consumer Prices Index will probably fall below 5% in the final quarter of 2023, it predicted.
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Bank Governor Andrew Bailey said: “Inflation is falling and that’s good news.
“We know that inflation hits the least well off the hardest and we need to make absolutely sure that it falls all the way back to the 2% target.
“That’s why we’ve raised rates to 5.25% today.”
It expects it to hit the target between April and June 2025, later than expected.
Though two members of the Bank’s decision-making Monetary Policy Committee (MPC) voted to hike the rate further, while one wanted to keep it unchanged.
Inflation was 7.9% in June, down from 8.7% in May and the lowest rate since March 2022, according to official figures from the Office for National Statistics (ONS).
It means that rates – which are a tool used by the Bank to bring inflation down to its 2% target – may not need to climb as high as feared.
But another rise today piles on more pressure on borrowers already facing big increases in monthly bills thanks to higher mortgage rates.
Investec Economics predicted a 0.5 percentage point increase, before pushing through a final quarter-point hike the following month.
It comes amid signs that the UK economy is slowing under the weight of higher interest rates.
House prices fell at the fastest annual rate in 14 years in July, as housing affordability has been stretched for people looking to buy a home with a mortgage, Nationwide said.
The slowing market has had a knock-on effect on a number of housebuilders and builders’ merchants who have flagged much weaker demand for properties.
Rishi Sunak said yesterday that inflation is not falling as fast as he would like, but that people can “see light at the end of the tunnel”.
Chancellor Jeremy Hunt said: “If we stick to the plan, the bank forecasts inflation will be below 3% in a year’s time without the economy falling into a recession.
“But that doesn’t mean it’s easy for families facing higher mortgage bills so we will continue to do what we can to help households.”
Meanwhile, banks are under more pressure to pass rate rises onto savers.
Myron Jobson, senior personal finance analyst for Interactive Investor, said: “There might be a bit more urgency among banks and building societies to pass on the base rate rise to their savings products this time around as the Financial Conduct Authority (FCA) has recently gained new powers to take robust actions against those offering unjustifiably low rates.”
It comes after banks and building societies have just weeks to tell customers their savings are earning no interest.
Until now, providers haven't had to contact customers to tell them they could be earning a lot more just by moving their cash to a better savings rate, but this week the FCA warned they must contact all their savings customers by September 30 or face paying a fine.
The FCA this week shared a 14-point action plan to make sure that savers are being offered better deals.
Here are the four things to look out for today.
1. Mortgage rates rising
Exactly how much more your bill will rise will depend on the type of mortgage you have.
Those on a fixed-rate deal are safe for now - but face a huge jump in borrowing costs when they come to remortgage.
Lloyds Banking Group, the UK's biggest lender, said its customers who will be fixing to a mortgage deal over the rest of the year could face an average £360 increase in their monthly repayments.
But other mortgages, such as a tracker or standard variable rate (SVR) mortgage, could be impacted straight away.
There are 639,000 residential tracker mortgages outstanding.
Your bank should warn you of any increase to your rate before it goes up.
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.
But the exact amount depends on your borrowing and your loan-to-value.
Some fixed mortgage rates have fallen in recent weeks, as the outlook for inflation has improved.
Victor Trokoudes, founder and chief executive officer of Plum, said the rise is still not great news for those with a mortgage.
"Anyone who is more exposed to rising interest rates via mortgages or other debt will be hoping that the Bank of England is finally getting rising prices under control so this rate tightening cycle comes to an end.
"Otherwise, the UK appears set to continue to be an outlier globally, which means even more misery for mortgage holders.
"With the base rate peak potentially still to come, homeowners will need to think carefully before deciding whether to opt for a new tracker or fixed rate mortgage.
"If you’re happy to take on the risk, a tracker could be a good option; for those who crave stability and can afford to pay higher rates, a fix is probably a better bet. A good mortgage broker will talk all the options through with you."
We've got more info on how to find the best mortgage rate deal here.
2. 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.
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.
The average interest rates on personal loans are already at their highest rate since October last year.
3. Savers could get better rates
Savers could get some further 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.
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.
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.
Right now, savers can get up to 4.55% in easy-access savings accounts and up to 6.1% in certain fixed bond accounts, according to MoneyFactsCompare.
Adam Thrower, head of savings at Shawbrook said: "Savers should now focus on not just the rate they’re receiving but the type of savings account they’re choosing.
"As interest rates climb, the likelihood of some savers exceeding their personal savings allowance threshold rises, potentially leading to tax implications.
"By opting for an ISA, savers can enjoy tax-efficient growth on their savings, maximizing their potential returns."
4. Inflation will remain high for now
Rising inflation indicates that the cost of goods and services is rising, so your money won't count for as much as it did before.
But to tackle inflation, the Bank of England opts to raise interest rates, with reduced spending power and demand subsequently bringing prices down.
And as part of that announcement, the BoE will also say what it thinks about the economy and make fresh predictions for inflation and GDP.
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The UK's rate of inflation dropped more than expected to 7.9% in June this year.
But despite the figures slowing, it still means the prices of everyday essentials are rising more than the BoE would like, which has a 2% target for inflation.
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