MILLIONS of homeowners could face higher mortgage repayments as the Bank of England is poised to hike interest rates again.
The central bank’s base rate is expected to rise from 4.25% to 4.5% later today.
The Bank of England has hiked interest rates since historic lows when many fixed mortgage deals
The rate is used by high street banks and lenders to set the rates it offers customers on mortgages, loans and savings.
A further hike by the Bank of England (BoE) would be the twelfth in a row since December 2021 when the rates were at historic lows.
Interest rates are already at a 15-year high and a further increase would match the rate last seen in October 2008.
Another increase will mean that a typical mortgage holder on the standard variable rate will see their bills go up by £35 a month, according to AJ Bell.
Households with a £250,000 mortgage are already paying £612 more a month compared with November 2021 when rates were 0.1%, according to TotallyMoney.
However, the blow will be even great for the 1.5million households whose fixed mortgage deals expire this year.
Those coming off the average 2.58% fixed rate available in 2021 will see their mortgage payments rise by £13,000 a year if they’ve taken out a £250,000 loan, according to AJ Bell.
The BoE wants to get inflation back down to it’s target of 2% by the end of the year, but it so far remains stubbornly high.
Hiking its base rate is one way of doing this.
Rising interest rates are meant to encourage households to save rather than spend, which forces inflation down.
Inflation is a measure of the price of everyday goods, so if it’s high it means everything from fuel to food is costing more.
The rate of inflation dropped to 10.1% in April. Prices are still rising, but at a slower rate than the previous month.
And it remains higher than experts predicted, and the central bank’s target.
That means the BoE will likely raise rates again today and in the future.
Goldman Sachs economists have raised their expectations for interest rates to peak at 5%, after earlier estimates that the BoE would keep rates flat at 4.25%.
They believe “ongoing inflationary pressures” mean the BoE will raise rates by increments of 0.25% “until reaching a terminal rate of 5% in August”.
Analysts at Deutsche Bank also expect another 0.25% rate rise in June.
Here’s everything you need to know about what a potential rise to the base rate means for you and your money.
What does a rise mean for mortgage holders?
Your mortgage rates could go up if interest rates rise – but how much depends on the type of loan you have.
The 1.4 million households on a tracker or variable rate (SVR) mortgage will see an increase in their costs.
For someone with £250,000 of mortgage borrowing, a 0.25% rise means an extra £35 a month in costs, according to AJ Bell.
At £400,000 of mortgage borrowing a 0.25% rise means an extra £56 a month or more than £672 a year.
Households on a fixed mortgage deal won’t see a payment increase straight away as they are locked into a rate for a set period.
But when these homeowners come to remortgage, they will likely face higher repayments as they as fixed deals will have much higher rates than when they last locked in.
Exactly how much more depends on the size of the mortgage, the rate you fixed at, the new rate and the loan-to-value when you remortgage.
Anyone coming off a fixed rate deal who hasn’t got a new mortgage sorted will end up falling on their lender’s standard variable rate (SVR).
MoneyFacts data shows that the average SVR has leapt over 7% and this means that someone coming off the average two-year fix from 2021 will see their rate rise from 2.58% to 7.3%.
On £400,000 of borrowing that would represent a truly shocking increase of £21,480 a year in mortgage costs – almost £1,800 a month.
Even at £250,000 of borrowing, it means a rise in costs of £1,067 a month – or almost £13,000 a year.
Sarah Coles, personal finance expert at Hargreaves Lansdown has explained whether these households should fix again.
She said: “If you fix now, you’re likely to see rates fall in the coming months, but you can’t be certain when they’ll fall, or how far.
“Meanwhile, you may well be on a higher variable rate while you wait, so you’ll pay a price.
“You might want to fix for two years on the basis that you’ll pay more for it now, but rates could be lower when you come to re-mortgage.
“Alternatively, you may decide that rates have fallen far enough for it to be worth fixing for longer, so you know where you stand.”
What does it mean for credit card and loan rates?
The cost of borrowing through loans, credit cards and overdrafts could go up too, as banks are likely to pass on the increased rate.
After consecutive rate rises by the BoE, interest rates on credit cards and personal loans already hit a record high in December, according to Moneyfacts.
Many big lenders – like Lloyds, MBNA, Halifax and Barclaycard – link their credit card rates directly to the Bank of England base rate.
That means their credit card rates will hike automatically in line with any changes to interest rates – but you’ll be given notice before this happens.
You can check the terms and conditions of your credit card to see if the rate can go up when the base rate does.
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.
What does it mean for savers?
The hike is likely to be good news for savers as banks will continue to battle it out to offer market-leading interest rates.
A rate rise is generally good news for savers, especially after a long stretch of getting very low returns.
Savers looking to make the most of their deposits can already get more back after savings rates hit a 14-year high last week.
Isbank, a Turkish bank that operated in the UK, has exclusively launched six new savings accounts on the Raisin UK marketplace.
All accounts pay customers 5% back on their deposits.
Traditional high-street banks have been accused of resisting passing on higher interest rates to savers in recent weeks.
But savvy savers can still get decent returns on their deposits by looking away from traditional high street banks and scouting for accounts offered by challenger banks.
Anyone currently getting a low rate on easy-access savings might want to look around for a better rate.
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