Interest rate hike to 0.25% puts more pressure on millions of households

MILLIONS of people with mortgages, loans or credit cards could be about to take a hit as the Bank of England today raised interest rates for the first time in more than three years.

There are concerns about a cost of living crisis as the base rate is now 0.25% – up from a record low of 0.1%.

Bank of England raised interest rates for the first time in three years


Bank of England raised interest rates for the first time in three yearsCredit: PA

This is the first time the Bank has raised interest rates since August 2018 – after cutting rates to a record low at the height of the Covid pandemic.

The increase was expected and there have been hints that it will come in recent weeks – although many experts have predicted the recent spike in Covid cases will delay the decision. .

As a result, millions of people will see their monthly repayments increase.

Around 2.2 million Britons are on variable-rate mortgages and 850,000 households are on track mortgages.

That means 3 million people are about to see their monthly repayments grow.

Anyone preparing to take out a new loan or credit card will have to pay more than if they had secured a transaction just a few days ago.

Some banks even started raising their mortgage rates a few weeks ago in anticipation of an increase.

Do we know rates are going up?

We doubted it, and there have been plenty of hints in recent weeks.

However, the recent spike in Omicron means many expect the Bank of England to hold off on raising interest rates until its next meeting in the new year.

For example, in Fall Budget, Prime Minister Rishi Sunak said he recently wrote to the Bank to remind the Bank of cost savings to keep inflation at 2%.

Present, inflationary is tracking at 5.1% – the highest level in a decade.

Usually, raising interest rates can help reduce inflation because it prevents people from spending and borrowing more.

The Bank of England is responsible for setting interest rates and setting them based on what is best for the UK economy and what will help it meet its 2% inflation target.

Interest rates were reduced to 0.1% in March 2020 in response to the outbreak of the Covid pandemic.

It is hoped that the rate cuts will help boost the economy, allowing banks to lend more money to support individuals and businesses across the country.

What does an interest rate increase mean for my finances?

Raising interest rates is bad for anyone in debt – especially if you’re not tied to a fixed rate.

If you have a fixed mortgage or a loan, you won’t be affected immediately because you’re tied up at a certain rate.

However, when you come to mortgage or take out a new loan, you will notice that the interest rate has gone up and it is more expensive.

However, the rate hike will be good for savers, who have been struggling to get a decent income on their money for years.

Banks are not quick to approve rate hikes but you should notice rates on savings accounts and Isas going up in the coming weeks.

The impact of this isn’t huge and you’ll still struggle to beat inflation, but it all helps.

If you have £1,000 in a savings account that earns 0.1% interest, you will only earn £1 in a year of interest.

If that number rises to 0.25 per cent, you’ll earn £2.50 a year in interest. .

Why are interest rates rising?

The Bank of England has to strike a balance between keeping borrowing cheap enough to ensure businesses and individuals can borrow money if they need it, but not so cheaply that it’s over-borrowed, driving up inflation.

Rising inflation is a big concern at the moment as it forces the cost of everything from energy bill with the price of food store.

Households had to Struggling with soaring bills and record high gasoline prices.

It is estimated that inflation could add £180 a year to a family’s average food bill.

And can bring families to the tune of £1,800 at the end of the year.

The Bank of England meets monthly to decide on interest rates with the next meeting taking place on November 4.

It is expected that at tomorrow’s meeting it may vote in favor of the increase.

What can I do to protect my finances?

It’s important to keep rates rising in context – interest rates remain incredibly low.

For example, before the 2007 financial crisis, interest rates were 5.75%.

And older generations can remember the 90s, when the rate was a whopping 14%.

So, while loans and mortgages may not be as cheap as they initially seem, there are still plenty of deals to match.

Homeowners should check their mortgage rates and consider switching to a cheap deal while they’re still available.

If 0.5 percentage points were added to the mortgage interest, it would add around £50 a month to the cost of a £200,000, 25-year mortgage or around £120 a month on a £450,000 mortgage , 25 years.

Some vendors offer extremely long transaction This gives you the certainty of your repayments over 40 years.

If you have credit card debt, transfer your debt to one 0% balance transfer card is a great way to avoid interest and pay faster than what you owe.

The overdraft rate on your bank account could also increase if the base rate rises, but experts say that won’t happen overnight.

If your credit card provider raises the price, you can decline and close the account. You will have 60 days to pay off what you owe.

If you are thinking of having a save account, you should wait until the rate goes up – especially if you’re looking at a fixed rate account that mounts your money over a certain period of time.

This is important because high inflation can erode the value of any savings you have.

Shopping on top of your other bills can help save money, even if they aren’t directly affected by an interest rate increase.

MoneySavingExpert’s Martin Lewis say you can save £500 on your auto insurance for example by switching to a better deal. Interest rate hike to 0.25% puts more pressure on millions of households

Bobby Allyn

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