The Bank of England has today voted to double the base rate. Its interest-rate-setting Monetary Policy Committe has chosen, by seven votes to two, to
The Bank of England has today voted to double the base rate.
Its interest-rate-setting Monetary Policy Committe has chosen, by seven votes to two, to increase interest rates by 0.25 percentage points and raise Bank Rate to 0.50%.
It means mortgage costs for millions of homeowners as well as potential rent rises for tenants too.
There’s also a risk for anyone else in debt, including businesses with loans.
Chief Executive of StepChange Debt Charity, Mike O’Connor, said: “With incomes already squeezed, even having to pay £20 more on average per month on a mortgage after today’s rise could push people who are just holding on by their fingertips from paycheque to paycheque, into the red.”
(Image: Matt Cardy/ Getty Images)
“We estimate one in 10 of our clients with a mortgage will end up with a deficit budget, and some households will need support to adjust.
“With more pressure on household budgets, this highlights the need for government to set out a clear strategy to help households get through financial difficulties.
As a start, we urge the quick introduction of the statutory breathing space scheme promised last week.”
The impact on mortgages
A staggering 8 millions Brits have just seen interest rates rise for the first time in their adult lives, Hargreaves Lansdown calculates, while millions more will have barely been affected by the last one.
“Millions of people on variable mortgages will see a direct increase in cost of roughly £200 a year per £100,000 of outstanding mortgage,” said Martin Lewis, founder of MoneySavingExpert.com
“And most lenders will pass on the full 0.25% if not more. Lenders change their standard variable rates not only based on interest rate moves, but for their own competitive advantage. Do not be surprised if some lenders use this move as an opportunity to sneak rates up further maybe 0.3%.”
The impact on savings
As for savers – get ready for (a bit) more interest.
“Low interest rates have been a plague for many with savings, especially those who retired and expected to live off the interest. So rate rises are generally good news for them – indeed we’ve already seen rates crawl up in expectation,” Lewis said.
Some providers have promised instant increases, with Nationwide the first to promise to up rates on its Loyalty Saver, Flexclusive ISA and children’s products such as Smart Junior ISA.
“The top easy access deal is now 1.3%, compared to just 1% a few months ago.
“This means I doubt we’ll see the top best-buys rise by the full 0.25% over the next few weeks. With a little bit of crystal ball gazing I’d say we’ll see them max out at 1.4% to 1.5%.”
But it’s not quite time to pop the champagne.
“Savers should check their sums before celebrating,” said Wealthify chief executive Richard Theo.
“Assuming all the benefits of the rate rise are passed on to the consumer, which is by no means a given, a 0.25% increase will give a saver with a £20k pot just £50 extra per year in returns.”