The cost of living: What the latest rate hike means for your money – and what you should do next | Business News

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The recent interest rate increase from the Bank of England will add to the monthly mortgage payments for millions of borrowers, but will provide some light relief for savers.

Here we explain the effects of the recent rise on different groups, as households struggle with a growing set of financial stresses associated with rising inflation and looming tax increases.

Mortgage Borrowers

UK Finance estimated in December – when the bank rate from the COVID crisis was raised as low from 0.1% to 0.25% – that 26% of home loans were at variable rates, which translates to about 2.2 million.

Of those, about 850,000 had tracker deals directly linked to price.

She said Thursday that the picture has not changed, which means there has been no rush to switch to fixed-rate deals since borrowing costs first started rising.

“After today’s bank rate rise to 0.5%, the monthly payment on the average tracked mortgage will increase by £25.76, and the monthly payment on the average SVR (standard variable rate) will increase by £15.96,” the authority said.

This could mean those on tracked mortgages having to pay an extra £309 a year.

74% of homeowners in fixed-rate deals will only be affected by higher levels of bank interest rates when they come to find a new deal at the end of the fixed-term – usually two or five years.

Fixed or variable? What should I do with the savings? How can I reduce energy bills? Answer your questions

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1:26 The rate hike is a ‘big moment’ for the UK economy

I have a variable mortgage – what do I do?

Experts were quick to warn that the picture for these 2 million borrowers is about to get worse, given that the bank rate is expected by markets to hit 1.25% later this year – and to rise even more next year .

Laura Sutter, head of personal finance at AJ Bell, said: “The bank expects the prime rate (bank interest rate) to rise to 1.5% by mid-2023.

“If that was the case, homeowners who borrowed £250,000 would have to pay an extra £19,56 a year, compared to the start of the year, while those who borrow £450,000 would have to find an extra £3,528 a year, or £294 a month. .

“One option is to fix your mortgage now, so you maintain current rates and avoid any future rate hikes.

“Mortgage companies are already starting to increase their rates, and they will go up again now that the rates have already gone up.

“Someone with £250,000 of borrowing on a standard variable average mortgage can now save £5,316 a year by switching to the current two-year reform.

“If someone wanted to switch longer, they would save less each year, but save more over the course of the repair.”

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“Anyone foolish enough to sit on their bank’s standard variable exchange rate is likely to see how much money they dump each month, which is particularly ridiculous with their utility bills on the About to go through the roof.

“My advice is that anyone whose mortgage deal has expired, or whose deal is due to expire before the end of September, now needs to go to Google and search for mortgage brokers near them, and pick up the phone for those with the best ratings.”

The higher costs come at a time when rising prices from energy and fuel bills to food and clothing have already pushed inflation to a 30-year high.

Mortgage and higher taxes — with the impending increase in National Insurance contributions due from April — will only exacerbate that pain.

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4:00 Why are your bills rising?

What does this mean for savers?

Savers have been squeezed by very low rates – which means the value of their nest eggs hasn’t kept pace with inflation – for many years.

They can take some comfort from higher rates, although upward shifts in a bank rate usually take longer to pass by banks and building societies.

According to Moneyfacts.co.uk, the market average Easy Access savings account was paying 0.2% in December, while the average ISA Easy Access paid 0.26%.

When you consider that December inflation was 5.4% and the BoE sees 7.25% in April, small increases in savings rates will have a limited impact.

Ms Sutter said: “If you save £10,000 and put it on the best fix for two years now, you’ll earn £327 interest at the end of the two years, but if you wait and savings rates go up 0.25 percentage points as the base rate, you’ll get an extra £51 in interest.

“If the base rate goes up to 1.25% and all of that is transferred to savings rates, you’ll earn an extra £204 in interest at the end of the two years.”

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