UK interest rate raised to 0.75% – what you need to know

The Bank of England has raised the base rate from 0.5% to 0.75% – only the second rise in over a decade. Here’s what it means for your finances, including the very latest on how individual banks’ mortgage and savings rates are changing.

The base rate is the Bank of England’s official borrowing rate – ie, what it charges other banks and lenders when they borrow money – and it influences what borrowers pay and savers earn. The increase announced on Thursday follows a rise last November from 0.25% to 0.5%.

The Bank’s Monetary Policy Committee (MPC) voted 9-0 to raise the rate, and said that future rises “are likely to be at a gradual pace and to a limited extent”.

Here are the key need-to-knows for your finances:

• Many mortgage rates will rise. If you’re on a standard variable rate mortgage, your rate is very likely to go up, and if you’re on a ‘tracker’ mortgage – which as the name suggests tracks the base rate – it definitely will. So if you’re a mortgage holder, urgently check if you can save £1,000s by remortgaging before the best deals disappear. If you’re on a fix, your rate won’t change for now, but when it ends and you remortgage rates may have risen.

• For savers, the rate rise is generally good news. It should push best-buy rates up on both savings accounts and ISAs, so if that happens you may be able to earn more by ditching and switching. Banks may also increase variable rates, though it’s far from guaranteed – if you’re on a rubbish rate currently, you may be best off switching now.

• Loans will be mainly unaffected – though rates for new borrowers could rise. If you’ve a loan currently, it’s almost certainly at a fixed rate, so there’s no impact. But best-buy rates for new borrowers could rise soon. 

‘Bad news for mortgage holders… but savings rates should creep up’

Guy Anker, deputy editor of MoneySavingExpert.com, said: “For savers, the rise should act as a powerful trigger to review your accounts and ditch and switch if a better deal appears. Many put up with paltry 0.1% returns – or worse. Even without the base rate jump it was possible to earn much more than that, but the best deals will hopefully – but not definitely – creep up.

“So if you’re being ripped off, instead become an active switcher and make them pay you a decent return.

“Even if you earn what you think is a decent interest rate, check in a couple of weeks once the dust’s settled if it’s still good relative to whatever the best buys are, as there’s no guarantee your bank will pass the rise on to you.

“Yet this is bad news for mortgage holders, especially those on a variable rate which will now rise in price. The cost of the cheapest new deals for switchers or homebuyers will also likely jump.

“That means it’s vital everyone on a variable deal or whose fix is close to ending checks if they can save £1,000s by remortgaging, as the longer you wait the higher the cost of new deals may get.”

Article taken from Money Saving Expert.com

Written by Callum Mason, News Reporter