LOAN HELP
Mortgage relief for millions as Bank of England PAUSES interest rate hikes – what it means for your money
MILLIONS of households can breathe a sigh of relief as interest rate hikes have been paused.
The Bank of England's Monetary Policy Committee (MPC) has opted to hold the current base rate at 5.25%.
2
2
The BoE base rate is often used by high street banks to set the rates they offer to customers on things like loans, savings and mortgages.
In August, it lifted the base rate by 0.25 percentage points from 5% to 5.25%.
But today marks the first time since December 2021 that the central bank has voted not to raise rates.
The decision to pause rates comes after a close decision, with five members opting to keep them the same and four choosing to raise them.
READ MORE IN MONEY
The four who voted to hike rates reasoned it was due to household incomes rising in real terms.
Following today's announcement, Steve Seal, chief executive officer at Bluestone Mortgages, said consumers and borrowers would be letting out a "sigh of relief".
He added: "This combined with the return of (mortgage) rates below 5% indicates that we may have turned the corner, and should give borrowers a boost of confidence."
Meanwhile, Jeremy Hunt, chancellor of the exchequer, said: "We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments.
Most read in Money
"Now is the time to see the job through.
"We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down."
Some economists had expected to see the 15th consecutive rise to 5.5%, which would have been the highest rate since 2008.
However, yesterday's surprising inflation figures are thought to have eased the pressure enough to pause rates this month.
The Consumer Price Index level of inflation decreased from 6.8% in July to 6.7% in August, according to 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 – do not need to climb as high as previously feared.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said: "The decision to keep interest rates on hold, while unexpected, is the right one given the current backdrop of economic uncertainty and will come as a relief for those people struggling with their mortgage bills.
"Hopefully this decision means the Bank of England is becoming more forward looking in setting interest rates."
The BoE pausing rates today will be welcomed by millions of homeowners and borrowers who won't see their current rates rise.
Savers will likely see no change as banks won't be as pressed to battle it out for market-leading interest rates.
But the news of the paused base rate also comes as the MPC downgraded its forecast for the UK's economy.
It now expects gross domestic product (GDP) to rise just 0.1% between July and September, compared with the 0.4% it predicted in August.
Meanwhile, the MPC did not rule out further base rate rises in the future.
Andrew Bailey, the Bank's governor, said: "Inflation has fallen a lot in recent months, and we think it will continue to do so.
“That’s welcome news. But there is no room for complacency.
"We need to be sure inflation returns to normal and we continue to take the decisions necessary to do just that."
What it means for your money
Below we reveal more about what the rate pause means for your money.
Mortgages
Usually if rates rise it means that mortgage bills, depending on the type you have, will increase.
Those on a fixed-rate deal tend to be safe for now until they remortage.
But other mortgages, such as a tracker or standard variable rate (SVR) mortgage, can be impacted straight away.
Homeowners on variable-rate mortgages might not see their repayments go up straight away, but they likely increase shortly after interest rates are hiked.
But the exact amount depends on your borrowing and your loan-to-value.
However, because the BoE has opted to freeze current rates, your lender may opt to do nothing at all.
This will come as a huge relief to those who have faced 14 consecutive increases to their mortgage bill.
Either way your bank should warn you of any increase to your rate before it goes up.
We've got more info on how to find the best mortgage rate deal here.
Credit card and loan rates
Again the cost of borrowing through loans, credit cards and overdrafts can go up if the base rate is hiked, 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 anyway, 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.
Because of the rate pause though nothing is likely to change for now.
Although you can still cancel a credit card if you want and will have 60 days to pay off any outstanding balance.
Savings rates
Savers are the main group to have actually benefited after the last 14 rate rises.
That's because banks tend to battle it out by offering market-leading interest rates.
Although banks are usually much slower to act than with passing on higher rates for borrowing.
Of course because the rate will now not be changing for the time being, banks will likely take advantage and keep their rates the same too.
READ MORE SUN STORIES
Anyone currently getting a low rate on easy access savings could find it's worth looking around for a better rate and moving their money.
Alice Haines, personal finance analyst at Bestinvest, said: "While saving rates have been jumping up in recent months as lenders compete for new customers, a rate pause could change the course of direction so now might be the time to nab a fresh fixed-rate deal before the best offers disappear."
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
You can also join our new Sun Money to share stories and tips and engage with the consumer team and other group members.
Topics