What Bank of England interest rate rises mean for you and how you’ll be affected when they go up this year
Governor Mark Carney held the base rate at 0.5% but indicated the increases could accelerate if the economy remains on its current trajectory of recovery
THE BANK of England voted to hold the base rate at 0.5 per cent again today - but the Governor Mark Carney indicated there are more increases to come, and sooner than previously thought.
This is down to the continued growth in the economy, and the projected increase in GDP, with the Bank increasing its forecast for the coming months.
It now seems likely the next rate rise will happen in May – but what will that mean for people’s everyday finances:
Firstly, what is the base rate?
Simply put, it’s the country’s official borrowing rate, and is the rate the Bank of England lends to all the other banks in the UK.
It is incredibly important as it a guide for lenders on what rates it can offer – and therefore impacts mortgage rates, credit cards, loans and savings.
It was stuck at record low levels for a decade because of the state of the economy after the financial crash in 2008.
It was raised back to 0.5 per cent last November, but after today’s decision by the Bank has seen markets pencilling in more than three hikes within three years., starting later in 2018.
What it means for savers:
They are the big winners from rate rises, as it will mean higher returns on any savings and investments – as the rate will go up based on the bank rate.
But a small increase won’t be a huge benefit to people – as an initial expected hike of 0.25 per cent rise on a balance of £2,000 will mean just £5 more in interest.
What it means for borrowers:
Rate rises are bad for them, as it means the cost of borrowing money will likely rise.
There are fears that after a decade of cheap credit due to low levels of interest, as a country we now hold too much debt on things like credit cards, and any increase in the amount we have to pay back could be damaging for the economy.
It means repayments on credit cards, loans and finance deals such as car purchases with variable rates will go up, although small increases will not have a huge impact to begin with.
It is calculated that on a balance of £5,000, you'll pay just over £1 extra in interest each month on a rise of 0.25 per cent.
What it means for people with a mortgage:
For those with a fixed rate, which is just over half of the eight million people who have a mortgage on their home, it will mean no change to their repayments in the short term.
But it does mean when they come to the end of their fixed rate period the payments will be higher than previously thought.
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The big impact though will be for 3.7 million mortgage owners who have a tracker or variable rate deal.
This will mean an instant rise to monthly payments, which over the course of a year could have significant impact.
Those with a £200,000 mortgage over 20 years will see their monthly payments go up by £26 - £312 a year.