[ad_1]
The Bank of England has raised the base interest rate, hitting millions of households.
Interest rates were raised from 3.5% to 4% today to combat high inflation.

1
Seven members of the BoE’s Monetary Policy Committee (MPC) voted in favor of raising rates, while two voted in favor of keeping them at 3.5%.
It’s the 10th consecutive time the BoE has raised the base rate.
The last time was in December, when it rose from 3% to 3.5%.
This follows the largest single rate hike from 2.25% to 3% in November. The last time it rose above this was at the end of 2008.


This is the highest level since 4.5% in October 2008.
But in some good news, the BoE said the recession the UK is now facing is much shallower than originally predicted, partly due to falling energy prices.
We also expect rates to peak at 4.5% in mid-2023 and return to 3.25% after three years.
This comes after the International Monetary Fund (IMF) warned earlier this week that the UK would be the only major economy to contract this year.
Ben Broadbent, Bank of England Deputy Governor for Monetary Policy, said Brexit’s impact on the economy “is having some impact on growth”.
Not all banks raised mortgage rates following the BoE rate hike in December.
This is because many rate hikes are already priced in based on previous forecasts.
Fixed-rate mortgage rates have already started to fall since last year when the market feared rates would rise above 6%.
When the BoE raises the benchmark interest rate, banks typically raise the amount they charge on loans and mortgage repayments.
But for those with hidden savings, rate hikes are usually good news.
Steve Seal, CEO of Bluestone Mortgages, said to seek help if you’re struggling financially.
“Not only will there be broader support available for customers struggling financially, but rates are likely to drop again later this year.”
Why is the Bank of England raising the benchmark interest rate?
One of the BoE’s main tasks is to keep inflation at 2%. Raising the base rate is one way to do this.
Rising interest rates are meant to encourage households to save rather than spend, which drives down inflation.
Inflation eased to 10.5% in December from 10.7% in November. In October, it hit a 40-year high of 11.1%.
In December, the BoE said it expected inflation to continue to gradually decline over the first few months of 2023.
In a letter to Prime Minister Jeremy Hunt, BoE governor Andrew Bailey said the bank believed inflation had peaked last year.
But it also suggests that high levels will continue until the end of 2023.
Inflation is a measure of the price of commodities, so high inflation means everything from fuel to food costs more.
This comes after the International Monetary Fund (IMF) predicted that the UK would be the only major G7 economy to shrink this year.
Hitting millions of households, the UK economy is projected to contract by 0.6% in 2023.
But what does today’s rate hike mean for your finances?
rising mortgage interest rates
Mortgage rates are likely to rise with today’s rate hike, but how much will depend on the type of loan.
Those with fixed rate mortgages will not be affected until the fixed period ends and they sign another contract.
Other mortgages, such as Tracker or Standard Variable Rate (SVR) mortgages, may be affected immediately.
Tracker’s mortgages are directly linked to the BoE’s base interest rate, so the impact can be seen immediately.
Homeowners with standard floating rate mortgages won’t see their repayments go up anytime soon, but they could go up in the immediate aftermath of today’s rate hike.
Banks should be notified of any SVR changes before the SVR increases.
The exact amount to be increased depends on how much you owe and the value of the loan.
Loan value is the ratio of the amount borrowed for the mortgage to the amount paid as a deposit.
How high will your home loan go?
According to TotallyMoney, today’s 0.5% increase will add £52 a month to non-fixed contract mortgage bills.
This is based on an average UK property value of £270,708 with a 75% loan-to-value and a 25-year term mortgage.
Fixed-rate mortgage rates soared above 6% following the government’s mini-budget in September.
Average fixed two-year mortgage rates peaked at 6.65% on October 20, up from 2.25% a year earlier, according to MoneyFacts.
Meanwhile, the five-year fixed average deal peaked at 6.51%, up from 2.55% a year earlier.
Currently, the average 2-year fixed mortgage interest rate is 5.44%, while the average 5-year fixed mortgage interest rate is 5.20%.
In December, the Bank of England warned that interest rates could rise by 3.5% and millions of households could face a £3,000 annual increase in mortgage repayments by the end of 2023.
With the benchmark interest rate now rising to 4%, this number could rise further.
A new analysis by the Labor Party suggests homeowners could face up to £14,000 a year in mortgage increases when they exit fixed rate contracts.
TotallyMoney CEO Alastair Douglas said 750,000 homeowners were at risk of defaulting on their mortgage over the next two years due to rising monthly payments. .
For those in this situation, he said, contact the lender as soon as possible to reach an agreement.
“The Financial Conduct Authority recently instructed companies to support borrowers with measures such as lowering customer repayments, switching to interest-only or moving to alternative interest rates,” he said.
Credit card and loan interest rates could rise
The cost of borrowing through loans, credit cards and overdrafts is also likely to rise.
According to Moneyfacts, interest rates for credit cards and personal loans have already hit record highs in December after consecutive rate hikes by the BoE.
Many of the big banks such as Lloyds, MBNA, Halifax and Barclaycard link their credit card rates directly to the Bank of England base rate.
This means that your credit card interest rate will automatically increase as interest rates change, but you will be notified before it does.
You can check your credit card’s terms and conditions to see if the rate increases when the base rate increases.
Certain loans you already have, such as personal loans and car loans, usually stay the same because you’ve already agreed on the interest rate.
However, interest rates on future loans may be higher, and lenders may increase interest rates on credit cards and overdrafts, but you must notify them in advance.
You can cancel your credit card if necessary and pay any outstanding balance within 60 days.
Saver might get better rates
The rate hike could be good news for savers as banks struggle to offer market-leading interest rates.
Rising interest rates are generally good news for depositors. Especially after borrowing money at very low interest rates for a long time.
However, keep in mind that high inflation can erode the value of your savings.
So if you have £100 in the bank this year and the inflation rate is 10.5%, the effective purchasing power of that money will be reduced to £89.50.
An increase in the benchmark interest rate may cause banks to pass on higher interest rates to savers, but banks typically act much more slowly than they do to pass on higher interest rates for borrowing.


This means that the savings rate is likely to rise slowly rather than change quickly.
Those currently getting low rates on easily accessible savings may want to look for better rates.
Got a money problem that needs sorting out? Email us at money-sm@news.co.uk.
[ad_2]
Source link