Martin Lewis has shared how the newly announced Bank of England interest rate of 4.5 per cent will impact on people with savings or a mortgage. The Bank increased the base rate for the 12th time in a row, taking it to the highest level since 2008.
The Bank said UK inflation is expected to fall slower than previously thought as food prices have stayed higher for longer than expected, partly due to Russia’s war in Ukraine and poor harvests in some European countries, ramping up the cost of living for households across the country. Inflation is still expected to drop sharply from April this year, as energy prices decline and household bills are subsidised.
In a post on Twitter to his 2.2 million followers, the founder of MoneySavingExpert.com explained that variable/tracker rate repayment mortgages will rise by around £12 per month (£150 per year) per £100,000 of borrowing. He added that existing fixed-rate mortgages won't change.
For savers, he said: “Top paying easy access savings accounts will likely rise a tiny bit over the next few weeks (though competition between providers is the biggest driver of change right now). Most big bank savings will continue to pay diddly squat, so check, ditch & switch.”
He added that savers are unlikely to see top fixed rates rise by much as the increase from 4.25 per cent to 4.5 per cent was “well-flagged” in advance.
Inflation is expected to decline to 5.1 per cent in the fourth quarter of the year, meaning the UK Government would narrowly hit its target to halve inflation by the end of the year.
The Bank had previously thought Consumer Price Index (CPI)I inflation could fall as low as 1 per cent by the middle of 2024 but it is now predicted to reach around 3.4 per cent.
The hike to the interest rate will pile more pressure on borrowers and help the Bank to bring inflation down to the two per cent target. But the impact of higher rates has yet to be widely felt for households across the country, partly because many borrowers are tied to fixed-rate mortgages that have not renewed yet.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said: “The latest base rate rise will be disappointing news for borrowers who have been unable to refinance onto a fixed-rate mortgage, yet another blow to their monthly outgoings amid a cost of living crisis.
“Those aiming to lock into a fixed-rate mortgage for peace of mind will find average rates have come down slightly over the past month, but as rates average around 5%, this may still be unaffordable for some. The average five-year fixed mortgage rate is lower than the two-year fixed, which may encourage prospective borrowers to lock down their rate for longer. However, fixed mortgage rates could be unpredictable in the months to come, so some borrowers may even sit on their revert rate waiting for cheaper deals to surface.”
She added: “Inflated house prices and the relentless impact of the cost of living crisis will be taking its toll on borrowers, and there may be some concerned about whether this is the right time to take out a mortgage. Seeking advice is vital to ensure borrowers can comfortably afford to refinance based on their own individual circumstances.
“New buyers looking to get their foot onto the property ladder will still be facing a housing supply shortage and their deposits may not stretch far. These borrowers remain vital to keep the mortgage market moving, so hopefully more positive innovative changes will surface to support these buyers.”
Responding to the latest rate rise, Vikki Brownridge, Chief Executive of StepChange Debt Charity, said: “The steep jump in interest rates we’ve seen over the past 12 months has been a shock to household budgets, compounding financial difficulty for people who are already struggling to make ends meet. As time goes on, more mortgage holders will be facing the prospect of a new fixed rate deal or variable rate which will consume a larger proportion of their income, making it increasingly difficult to meet other financial commitments.
“The situation is becoming increasingly precarious for many people and widespread problem debt is a risk, particularly for financially vulnerable households. We would urge firms to be proactive in identifying and communicating with customers who might be falling into difficulty by offering tailored support and signposting to free debt advice.
“For anyone worried about housing costs and their ability to cover payments, it’s important to reach out for help as early as possible, whether that’s through contacting their lender, or a free debt advice charity like StepChange.”
To keep up to date with the latest cost of living news, join our Money Saving Scotland Facebook page here, follow us on Twitter @Record_Money, or subscribe to our newsletter which goes out Monday to Friday - sign up here.
READ NEXT
- How inflation drop to 10.1% will impact your household budget, savings and mortgages
Martin Lewis shares crucial mortgage tips for getting best deal if current fix due to end this year
People on Universal Credit can now get faster help from DWP for mortgage interest payments
Top tips for first-time buyers looking to step onto the property ladder this year
Check for Council Tax discount of up to £750 as new payments start this month
