Interest rates set to rise to highest in 30 years as Bank of England batters households | The Sun

THE Bank of England is today expected to clobber households with the biggest interest rate rise for 30 years.

The market expects the Bank to announce a 0.75 per cent increase to three per cent — the highest level since 2008.

Such a hike would be the biggest since Black Wednesday in 1992, when interest rates briefly rose from ten to 15 per cent as the Pound collapsed.

Bank governor Andrew Bailey has been criticised for not hiking rates faster to counter inflation.

But any rise is a worry for the 1.5million homes on tracker mortgages, whose payments will soar by an average £880 a year.

And the average mortgage holder on the standard variable rate (SVR) could see their payments rise by £1,476 a year if the base rate hits 3%, according to Hargreaves Lansdown.


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Last night the US central bank, the Federal Reserve, increased interest rates by 0.75 per cent.

The Bank of England (BoE) has already hiked the base rate seven times this year.

Interest rates last rose from 1.75% to 2.25% on September 22.

The move will make the cost of borrowing, including loans, credit cards and mortgage repayments more expensive.

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High-street banks use the BoE base rate to work out the interest rates it offers to customers.

Lifting interest rates is meant to encourage people to save, rather than spend, which in theory should help bring rampant inflation under control.

The BoE predicts that inflation will peak at 11% in October and then remain above 10% for a few months after.

But what does this mean for your finances? We've explained all below.

Rising mortgage rates

Those on the standard variable rate (SVR) could see their payments rise by £1,476 a year if the base rate hits 3%, according to Hargreaves Lansdown.

This will mean that a household with a £250,000 mortgage over 25 years on the average SVR rate of 5.4% will see their monthly payments increase by £123.

And around 800,000 homeowners on a tracker mortgage directly linked to the base rate will see an immediate rise.

Exactly how much more your bill will depend on the type of mortgage you have.

Those on a fixed rate are safe for now – but face a huge jump in borrowing costs when they come to remortgage.

Around 2.2million borrowers are due to come to the end of a deal that they fixed when the base rate was at a historic low of 0.1%.

On a fixed deal you lock in a rate for a certain period of time which keeps payments the same.

Sarah Coles, personal finance expert at Hargreaves Lansdown said: "For anyone on a variable rate mortgage – like a standard variable rate or a tracker mortgage – much of this rate rise is likely to be passed swiftly through into your monthly payments.

But, Nick Morrey, technical director at mortgage broker Coreco said: "We are not expecting very much to happen to mortgage rates at all if the Base Rate hits 3%. 

Nick is said that this is because of the fact that rates have risen so much and a 0.75% point increase is already factored into them.

Lenders upped rates last month on the assumption that the base rate would peak at 5% next year.

But Nick said: "It's now expected that the base rate will peak at 4% and now we are actually seeing small reductions in mortgage rates across the board."

Some fixed mortgage deals have had their rates reduced in recent days.

The Sun reported that a number of lenders started cutting their deals last week.

The average two-year-fixed mortgage rate is now down by 0.17% points since its high on October 20 – from 6.65% to 6.48%.

And average five-year fixed mortgage rates are also down by 0.18% points from 6.51% to 6.33%.

The predictions come after mortgage rates hit a 14-year high last month.

Mortgage rates rose substantially as the number of deals on the market nosedived following Kwasi Kwarteng's mini-Budget last month.

The fall-out from the mini-Budget led sent the pound plummeting against the dollar to a low of $1.03 on September 26.

And it led the Bank of England to warn that interest rates would rise to 6% next year.

But, in recent days the markets reacted positively to Rishi Sunak's appointment as Prime Minister – bringing some stability to the mortgage markets.

Credit card and loan rates could rise

The cost of borrowing through loans, credit cards and overdrafts could go up too, as banks are likely to pass on the increased rate.

Certain loans you already have like a personal loan or car financing will usually stay the same, as you've already agreed on the rate.

But rates for any future loan could be higher, and lenders could increase the rate on credit cards and overdrafts – although they must let you know beforehand.

You can cancel a credit card if you want and will have 60 days to pay off any outstanding balance.

The average interest rates on personal loans are already at their highest rate since October last year.

Individuals hoping to borrow £3,000 over the next three years face an average rate of 15.2%, compared to 14.3% this time last year, according to MoneyFacts.

The average rate across all types of credit cards including fees has hit a new high of 29.8%, according to MoneyFacts – up from 25% last October.

Savers might get better rates

Savers could get some further relief as banks continue to battle it out by offering market-leading interest rates.

A rate rise is generally good news for savers, especially after a long stretch of getting very low rates on their money.

Along with low rates, high inflation can erode away the value of any savings you have.

So if you have £100 in the bank this year and inflation is 10%, the real spending power of that money is reduced to £90 next year.

Another rate rise could see banks pass on higher rates to savers – though they are usually much slower to act than with passing on higher rates for borrowing.

This means savings rates are more likely to edge up slowly rather than change immediately.

Sarah Coles said: "For savers, any rate rise is unlikely to provide an overnight big bang where rates jump significantly.

"With the big high street banks stuffed full of lockdown savings, they’re happy to continue offering miserable rates – typically under half a per cent.

"It means it’s up to the smaller, newer and online banks to bump rates up."

Anyone currently getting a low rate on easy access savings could find it's worth looking around for a better rate after any rate rise and moving their money.

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Right now, savers can get up to 2.81% in easy-access savings accounts and up to 5.1% in certain fixed bond accounts, according to MoneyFacts.

We've previously explained how to find the best savings rates.

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