Bank of England: What another interest rate rise means for your mortgage and savings

What another Bank of England Base Rate rise could mean for savings, mortgages and loans The Bank of England has been progressively raising the Base Rate since December 2023 to help curb the UK’s rocketing pace of inflation. While the Base Rate currently stands at a 15-year high of five percent, many analysts predict it’ll rise again this week by at least 0.25 percent – while some predict an increase of as much as 0.5 percent. Commenting, Myron Jobson, Senior Personal Finance Analyst at interactive investor said: ‘All eyes are on Bank of England policymakers who are odds-on to press ahead with yet another increase in interest rates on Thursday.’ Mr Jobson said that, while Britons may have celebrated a small inflation win in June, which saw a lower-than-expected rise in prices at 7.9 percent, core inflation remained ‘sticky’ at an annualised 6.9 percent. He said: ‘The Bank of England has had to lift interest rates to the highest since 2008 so far to do it – so clearly more needs to be done to tame the inflation beast.’ The Bank of England has raised the Base Rate 13 times since December 2021 With another Base Rate rise appearing to be what Mr Jobson described as ‘written in the stars’, how exactly could this impact savings, mortgages and loans? Mortgages While the Bank of England doesn’t set mortgage rates, its decisions influence how they move. Mr Jobson said: ‘Lenders have already anticipated a hike in interest rates, meaning much of this is already priced into fixed rate deals. ‘But the 2.2 million homeowners on variable rate mortgages, which are tied to the Bank of England’s Base Rate, will continue to feel the full brunt of the expected increase in interest rates as part of the UK’s central bank’s efforts to drag inflation closer to its two percent target. Figures released by Moneyfactscompare.co.uk shows that mortgage rates have already started to climb higher, with the typical two-year fixed mortgage rate now at 6.85 percent, while rates are resting at 6.37 percent for five-year fixes. Mr Jobson said: ‘The fact remains that we’ll need to see a significant and sustained fall in inflation before mortgage rates move meaningfully lower.” While the rise in interest rates means that borrowing is more expensive, Mr Jobson described the ‘silver lining’ to be a greater uptick in savings rates. There may also be more urgency among banks and building societies to pass on the Base Rate rise to their savings products this time around as the Financial Conduct Authority has recently gained new powers to take ‘robust action’ against those offering unjustifiably low rates. Mr Jobson said: ‘The city watchdog has wasted no time in exercising its new powers, gained under the Consumer Duty, by setting out a 14-point plan to make sure that interest rate rises are passed on to savers appropriately.’ However, he noted: ‘It is important to bear in mind that buying power of cash savings continues to be eroded by inflation which, at 7.9 percent, far outstrips the market leading savings rates. Those who can afford to put money away for five years or more should consider investing for the potential of long-term inflation-beating returns that far outstrip savings rates.’ SUBSCRIBE Invalid email We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info Trending