Mortgage borrowers whose deal directly tracks the base rate will see their payments increase by around £49 per month on average, adding up to nearly £600 annually, as a result of the Bank of England’s base rate hike announcement last week.
The figures, from trade association UK Finance, also showed that a borrower sitting on their lender’s standard variable rate (SVR) will typically see a monthly increase of just under £31, adding up to around £370 per year. Nearly four-fifths (78%) of residential mortgages outstanding are fixed rates, meaning these borrowers will not see the immediate impact of the base rate hike from 1.75% to 2.25% - the highest level since November 2008.
Which means if they have been safely locked into their home loan for a while, they may find they get a bill shock when they do eventually re-mortgage.
Personal finance expert Laura Howard of Forbes Advisor, explained: “When viewed in the centuries-long history of the Bank of England interest rates, 2.25% is still relatively low. But right now, it’s a huge shock.
“The truth is, an entire generation of borrowers have never known interest rates at this level - the last time the Bank rate stood higher was 12 years ago in November 2008 when it was at 3%.
“Homeowners coming to the end of their mortgage deal will have little choice but to meet the inevitable higher monthly payments, and that’s on top of the extra cash needed for energy bills, food and petrol.”
The money expert continued: “Those looking to buy for the first time will have an even steeper road to climb in terms of showing sufficient affordability against lenders’ higher mortgage rates.
“While the Bank rate rise is further good news for savers, they will still have to hunt out the best returns, versus the required access to their cash, to make sure they benefit.”
Five tips on how to manage the Bank of England rate rise
Know your mortgage inside-out
Check the exact mortgage rate you are paying, what date the deal expires, and what your mortgage rate will likely revert to.
Then, put what it means in pounds and pence against each. There may be nothing you can do about rising interest rates but knowing where you stand is the first step to getting prepared. For example, it’s possible to book a mortgage rate for your current home up to six months in advance.
Steer well clear of interest-bearing credit cards According to the Bank of England’s latest Money and Credit Report average rates on interest-bearing cards stood at 18.57% in July.
Not only are these rates painfully expensive, but they are variable.
Average credit card rates have increased by 2 basis points between February and July, but the next Bank of England report due out at the end of this month may well show a bigger hike.
If you have to borrow, always look for a credit card offering 0% on purchases and make shifting any existing card debt to a 0% balance transfer card a priority.
Look for cheaper ways to borrow
Rates on new personal loans increased by 19 percentage points to 6.89% in July and are likely to show a further increase as the Bank of England rate climbs.
While personal loan rates are fixed once the agreement is signed, there could be cheaper and more flexible ways to borrow such as a 0% credit card or interest-free overdraft - especially if you are only looking for a small amount.
Wake up your savings
Returns on savings have been steadily rising during the course of this year after more than a decade of earning next to nothing.
The top easy access accounts are now paying more than 2.00% AER and the latest rise in Bank of England rate should give these rates a further boost.
If your cash is languishing in a low-interest savings account, or even a current account, there’s nothing to lose by transferring it to a better-paying deal.
Up to £85,000 is protected by the Financial Services Compensation Scheme per banking institution.
Take time out for a financial review
Just getting from day-to-day and paying the bills is the main objective for millions of UK households as we head towards autumn and winter, but it’s worth taking some time to weigh up what the short, medium and longer term financial future could look like.
You may even find help available where you weren’t expecting it, such as benefits you could be claiming.
The quickest way to check for unclaimed financial support is through a free, confidential benefits calculator.
What is an online benefits calculator?
Online benefit calculators quickly work out if you are missing out on any benefits and best of all, they are completely free, independent and confidential to use - so there’s nothing to lose.
In just a few minutes you could find out how much you may be able to claim in extra support, just by entering details about yourself, your residential status, your working status and any savings you have.
You can use an independent benefits calculator to find out:
- What benefits you could get
- How to claim
- How your benefits will be affected if you start work
Where to find help
Advice Direct Scotland
This online tool is the first to fully integrate devolved benefits, including the Scottish Child Payment.
It provides a free and impartial assessment of entitlement to a range of benefits such as Universal Credit, crisis grants and support payments.
Turn2us
Information on income-related benefits, Tax Credits, Council Tax Reduction, Carer’s Allowance, Universal Credit and how your benefits will be affected if you start work or change your working hours.
Policy in Practice
Information on income-related benefits, Tax Credits, contribution-based benefits, Council Tax Reduction, Carer’s Allowance, Universal Credit, how these are calculated and how your benefits will be affected if you start work or change your working hours.
entitledto
Information on income-related benefits, Tax Credits, contribution-based benefits, Council Tax Reduction, Carer’s Allowance, Universal Credit and how your benefits will be affected if you start work.
What you will need
You will need accurate information about your:
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Savings
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Income, including your partner’s
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Existing benefits and pensions (including anyone living with you)
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Outgoings (such as rent, mortgage, childcare payments)
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Latest Council Tax bill
To keep up to date with the latest benefits news, join our Money Saving Scotland Facebook group here, follow Record Money on Twitter here, or subscribe to our twice weekly newsletter here.
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