This marks the sixth time in a row where the Bank of England has decided not to increase borrowing costs – however, the base rate still remains at its highest level in 16 years
The Bank of England base rate has been paused once again at 5.25%.
This marks the sixth time in a row where its Monetary Policy Committee (MPC) has decided not to increase borrowing costs – however, the base rate still remains at its highest level in 16 years. Economists had widely expected the base rate wouldn’t be cut just yet.
The base rate is what the Bank of England charges other banks and lenders to borrow money, with this then having a direct impact on how much you’re charged as a customer. Millions of homeowners have been hit with higher mortgage costs due to how much the base rate has increased since December 2021, when it stood at just 0.1%.
Those on a tracker mortgage will breathe a sigh of relief today, knowing that their mortgage won’t become more expensive – but anyone remortgaging from a much cheaper deal will find the rates today are much more expensive compared to their current mortgage. The rates applied to credit cards and loans have also become more expensive.
The winners of rising interest rates are savers. Although saving rates have nudged down slightly, there are still plenty of accounts that pay higher than the current rate of inflation, which is at 3.2%. The Bank of England has put up its base rate to try and bring down inflation, which hit a 41-year high of 11.1% in October 2022. Inflation is a measure of how prices have changed over time and the Bank of England has a target of 2% inflation.
The theory behind raising interest rates is that it makes borrowing more expensive, so people will then spend less and this should drive down demand and prices. The Bank of England started pausing its base rate when inflation started to get closer to the 2% target. Bank of England Governor Andrew Bailey previously said the base rate won’t be cut until the MPC is sure inflation will remain under control.
How does it affect your mortgage
If you have a tracker mortgage, your monthly repayments move in line with the base rate. The decision to pause the base rate today means there will be no immediate change in repayments for someone with a tracker mortgage – but again, these homeowners have already been hit with higher costs following the previous rate increases.
If you have a standard variable rate (SVR) deal, it is down to your lender to decide whether your rate will go up when the base rate changes. Most have become more expensive following the previous rate hikes. You’ll usually be moved on to the SVR of your existing lender once your current mortgage deal ends. More than 1.2 million people are on a tracker or SVR mortgage.
If you have a fixed rate mortgage, you won’t be affected by the base rate until your current deal ends. With a fixed deal, you agree to pay a certain amount for a set period of time. However, millions of homeowners will pay more and see their monthly payments increase when they come to remortgage. About 1.6 million fixed deals will expire in 2024, according to banking trade body UK Finance.
Renters have been hit with higher costs as well, as many landlords have passed on mortgage increases to their tenants. It means like mortgage holders, some renters are now also paying hundreds of pounds more each month, with some being priced out of their home.
How does it affect credit cards and loans
Interest rates on credit cards have become more expensive over the last couple of years, following the rate hikes. The average credit card purchase APR this month is 35.1%, according to Moneyfacts. Credit card rates are normally variable, which means they can change over time.
If your credit card is specifically linked to the base rate, then how much you pay back in interest can be affected when it rises or falls. You should check your terms and conditions to see if this applies to you.
If your credit card rate is changing, you should get 30 days’ notice. Interest rates on personal loans and car financing are normally fixed – but again, do check with your lender to be sure. The rates on new loans are higher now compared to last year.
How does it affect your savings
Saving rates have come down a touch, but you can still find accounts that pay about the rate of inflation. Oxbury currently tops the standard easy-access table with 5.02% – but you’ll need at least £20,000 to open it.
If you have less to save, Kent Reliance pays 4.96% if you have at least £1,000 to save, and Cynergy Bank pays 4.95% with a minimum deposit of just £1. You can also get up to 5.25% with Atom Bank and Allica Bank if you’re able to lock away your money with a six-month fix, or up to 5.18% with a one-year fix with SmartSave.
Regular saving accounts pay even more than this – but you’re normally limited to how much money you can save each month. First Direct, Skipton Building Society and Co-op Bank each pay 7% for one year, some are fixed and some are variable, but you can only deposit between £250 and £300 each month.
