The Bank of England is set to rise one of its most influential interest rates in a move to tackle further inflation rises. The central bank is expected to raise interest rates to their highest level on Thursday as it seeks to strike a balance between tackling record inflation and not taking action, risking economic decline in the UK.
The Bank of England (BoE) base rate is often called the interest rate or Bank Rate, and sets the level of interest all other banks charge borrowers. Earlier this year, the base rate was set at 0.5%, and prior to that it was as low as 0.1%, as the BoE worked to prevent the economy slowing during the coronavirus pandemic.
In March the base rate increased to 0.75% but now there's a possibility that the rate will be hiked further to 1%, its highest level since 2009. Because the base rate impacts all other interest rates it means that when the rate is low, it costs you less to borrow money, but means you earn less on your savings.
Its purpose is to help regulate inflation, with the BoE explaining the interest as: "What you pay for borrowing money, and what banks pay you for saving money with them."
The government sets the Bank of England an inflation target to keep it in check, and the Monetary Policy Committee (MPC) then decides on the interest rate. How will the possible hike affect you?
The rate is usually reflecting in the mortgage base rate so when the base rate is higher, interest rates on fixed rate mortgage tend to be higher. Higher interest rates on mortgages cost more over the full mortgage term, which is why more borrowers are opting for five and even ten-year fixes.
But what does this mean for those who already have a mortgage or are looking to get started on the property ladder this year? It means that interests on your mortgages will be higher according to the new base rate figure, which is set to be announced on Thursday.
The MPC will officially announce the figure on Thursday, May 5 following their quarterly Monetary Policy Report meeting. However, some banks are already preparing for the possibility of hikes.
Halifax has already sent out an email to their customers this morning regarding the possible changes. Their email, which is titled "The Bank of England base rate has changed today" is slightly misleading as it officially hasn't been announced yet.
However, Halifax has set out what the figure will mean for their mortgage customers. Those on a fixed rate mortgage won't be affected. Halifax say they will keep in touch with these customers through the life of their mortgage and when they are nearing the end of their fixed rate period they will contact customers to let them know what happens next.
Customers on a variable mortgage will likely see their mortgage repayments change. Halifax has said they will send these customers details of any change to their interest rate and mortgage repayments by post. These customers do not need to do anything until they receive this. The change won't happen straight away, Halifax say the date will be detailed in the letter.
You can use their rate calculator here to get an idea of how much your monthly mortgage payment could change by. If you're not with Halifax and are wanting to know what the new rate rise could possibly mean for you then it's best to contact your individual bank. Some banks may not officially announce their changes until the MPC has revealed their report.
For those looking to get a mortgage, The Cumberland currently has the cheapest monthly payment rate, depending on deposit. They have a mortgage offer starting from £347 for 24 months, find out more about it here. To get the best prices of mortgages all in one place visit MoneySuperMarket here.
