At noon on Thursday millions of people could see their cost of living rise – this is why and what you can do about it now
Interest rates could rise this week and that would be bad news for borrowers with millions of mortgage holders having to find an extra £400 a year.
Experts reckon the Bank of England’s official interest rate could climb for only the second time in a decade on Thursday when the Bank’s rate setting committee meets.
The committee is expected to increase rates from 0.5% to 0.75%, their highest level since March 2009.
If it happens, many mortgage borrowers could feel the negative effect pretty quickly.
“Mortgage lenders are usually quick to pass on any increase in base rate so if you are on your lender’s standard variable rate, a discounted-variable rate or base-rate tracker, then you will see an increase in your monthly mortgage payments,” warned Mark Harris of mortgage broker SPF Private Clients.
Number-crunchers at Experian have caclulated that a 0.25% hike would mean a typical borrower on a standard variable rate or tracker mortgage would be forced to find around £400 a year extra.
That’s based on a typical standard variable rate deal of 3.99% or a tracker mortgage 2% above base rate on a 20-year mortgage worth £250,000.
How to protect yourself
One solution is to switch to a fixed rate mortgage and take advantage of deals at present of less than 2%.
But if the expected increase proves difficult to manage, you should talk to your lender, advised Hannah Maundrell of money.co.uk .
“If rates rise, find out how much your monthly repayments will go up by and if you can’t afford to pay extra don’t be a sitting duck; talk to your lender about your options so you don’t end up over stretching your finances,” she said.
Credit card borrowers could also be hit, warned Andrew Hagger of Moneycomms.co.uk . “If you have a credit card with Barclaycard or Halifax your interest rate is linked to base rate, so higher rates will kick in straight away,” he said.
Will a rate hike help the struggling pound?
“Disappointingly for summer holidaymakers, a rate hike is not likely to make a substantial difference when they come to buy their holiday money,” said Phil McHugh of Currencies Direct.
“A hike on Thursday may lead to a short-lived boost for the pound before Brexit related uncertainty pulls it back down.”
Even savers are not likely to benefit this time, according to James Blower of The Savings Guru.
“If we do see a rate increase, it will make very little difference for savers,” he predicted.
Why? Because competition in the savings market is being driven by small and new banks and a base rate change is unlikely to make much difference to that.
“We may see some smaller building societies pass on some of the rate increase to savers but I expect the big banks and building societies to use any increase as an opportunity to improve their profit margins rather than help savers.“