Interest rates have risen to 2.25%, the highest level in 14 years. The Bank of England (BoE) made the announcement on Thursday, September 2022 and it was news that many financial experts were expecting.
The base rate now stands at 2.25% from its 1.75% level on Wednesday, an increase of 0.5 percentage points. This is the seventh rise and anyone with a mortgage, loan or outstanding debt with be acutely aware of the impact the rate rise has on any outstanding balances.
Mortgage and loan amounts may go up depending on the type of account you hold. However, on the plus side, those with savings should see a better return on their investment - something that has been sadly lacking for a number of years.
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The Bank is raising interest rates to try and cool soaring inflation - inflation in the UK is currently at a 40-year-high of 9.9%. The Government’s energy price freeze was likely to “limit significantly” further surges in inflation, reported the Mirror, with inflation expected to peak at just under 11% next month, according to the BoE.
The idea is that by raising interest rates, households will spend less and this should mean inflation will drop. However, what does all this mean to households? With the help of the Mirror, here's how the rate rise could impact Nottingham city and county residents and their finances.
What the rate rise means for your mortgage
The type of mortgage deal you're on will determine if your bills will go up now interest rates have been hiked again. If you have a tracker mortgage then your rate will go up, as these deals move in line with the base rate. If you're on a standard variable rate (SVR) mortgage, then you'll likely see your rates go up as well.
It is up to your lender to decide whether to pass on the increase - and most banks and building societies generally do increase rates. You'll usually be on an SVR type mortgage deal after your fix or tracker rate ends. Around two million people are on a variable rate mortgage.
This latest rise means you'll pay around £25 more each month on a £100,000 mortgage.
Alastair Douglas, CEO of TotallyMoney said: “Another increase to the base rate will pile pressure on the finances of over two million homeowners who may already be struggling with the soaring cost of living.“
He added: “The latest interest rate hike is being closely followed by a new, higher energy price cap, further compounding pressure just as we head into the cold winter months. People’s finances are being squeezed more than ever.“
If you have a fixed-rate mortgage, your rates won't change while you're still in your current deal. However, you may find you end up paying more when you come to remortgage as rates continue to increase.
What the rate rise means for your debts
Credit card rates are normally variable, which means they can change from time to time. They're not typically linked to the base rate - but they have been going up over time regardless as borrowing becomes more expensive. If you need to take out a new credit card, you may find new deals aren't as competitive as they were a year ago.
Alex Brown, financial adviser at Succession Wealth, said: "If you have a good credit rating and have outstanding credit card debt, it may be appropriate to consider looking to move your debt to a cheaper rate or to a 0% deal."
Continuing, Alex said: "0% balance transfer credit card deals are still currently available, as well as 0% purchase deals, meaning that you could cut the cost of your debt if you are paying high rates of interest. However, the best deals are usually only available to those applicants who have a strong credit rating, and those who have poorer scores may find themselves trapped on higher cost debt."
Interest rates on most personal loans and car financing are fixed, which means the rates on these shouldn't change. However, you may find cheaper loans start to disappear as most lenders will start to advertise a higher rate.
What the rate rise means for your savings
The upside to interest rates going up is that savings rates should - in theory - also increase. Banks should pass on the interest rate rise - but there is no guarantee they will, and some take time to introduce new rates.
Savings rates are also still painfully below the level of inflation. The top-paying easy access account right now is from Ford Money which is offering a rate of 1.95%. If your cash is locked into a fixed rate account, then the rate you get in interest won't go up. The top-paying one-year fix right now is from Oxbury Bank with a rate of 3.48%, while a five-year fix from United Trust Bank pays 3.75%.
Laith Khalaf, head of investment analysis at AJ Bell, said: “Fierce competition in the savings markets means providers are at war to be top of the best buy tables, with every day seemingly bringing another new interest rate offer for savers. The competition will be turbo-charged this week. While some of this increase will already be baked into savings rates, we should still expect another bump in the interest rates on offer.
“Interest rates on cash savings have come a long way, with the top easy-access rate standing at just 0.65% before the Bank started the current rate rise bonanza in December last year.“
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