What does the base rate rise mean for you?

Most of us will be affected by the increase in the Bank of England base rate.

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Last Thursday, the Bank of England increased the base rate to 0.5% from the record low of 0.25%.

Those with mortgages and other debts are likely to see costs increase. This is the first time the rate has gone up since 2007, which means many borrowers will have never been in this situation before.

We’ve already seen most mortgage lenders pushing through increases on their variable rate products.

Those with savings might finally see their rate tick upwards after years of stagnation or decline.

But no-one is getting too excited. While lenders have been quick to raise rates, savings products have, as yet, remained largely unchanged.

The only crumb of comfort for savers is that the direction of travel for interest rates has been reversed..

Here we take a look at the impact of the rate increase…

Base Rate Calculator

Find out how much your mortgage payments and savings will be affected by the change in the Bank of England base rate.

Your mortgage

You can usually find the balance that you owe, your current interest rate and how many years are left either:
• In your online banking statement
• By phoning your bank
• Or by taking a look at the last annual statement you have been sent.
£
%
Fixed mortgages are the most common short-term deal offered by lenders. If you have remortgaged (ie, moved to a new interest rate) within the last two years, there's a good chance you likely have a fixed rate deal - this means your rate can't be increased for a set period.

Your savings

£
%
You can find this in your online banking, by phoning your bank or on your monthly/annual statements
Fixed rate savings accounts pay you a set rate of interest for 1-5 years. They can be great to give you certainty of what you'll earn, but the rate won't increase (or decrease) during the fixed time period, meaning there is no benefit from a base rate rise.

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Your base rate results

As your rates are fixed, the payments or interest won't change in the short term.

However, check when your fixed term ends, and be prepared to switch to the best deals available. You can compare mortgage deals or get fee-free mortgage advice at any time.

Your base rate results

Good news! Overall, you are likely to be around £ better off over the next year as a result of the Bank of England's decision to its base rate by %

Unfortunately, it looks like the Bank of England's decision to its base rate by % could leave you
£ worse off over the next year

The change in base rate doesn't actually mean anything for you. It's not going to leave you any better or worse off.

In detail...

Your mortgage

Your mortgage costs will not over the following year as your mortgage is fixed

Your mortgage costs could by around £ per year, with new monthly payments of £

Your savings

The interest you earn from your savings will not change over the following year as your interest rate is fixed

You could earn around £ in savings interest per year.You can earn up to £1000 a year in savings interest without paying tax (£500 if you're a higher rate taxpayer). If you earn more than that, please note that the excess will be subject to your normal income tax rate.

Your savings won't be affected by the change in the base rate.

So what next?

You may be able to increase the amount of interest you earn on your savings. Take a look at the Top Savings Accounts.

As your mortgage isn't fixed, it's likely your monthly payments will increase. However it's also likely that you're free to move to a different rate or even change lender to lock in a more affordable rate. You can compare mortgage deals or get fee-free mortgage advice.

Your rates are fixed, so while you won't be affected by recent changes to the base rate, it doesn't mean you can't save money.

Try switching your energy supplier

Other bills can be addressed though. One in ten of our customers could save up to £568 by switching energy supplier*, so if you haven't done so in the last year, go for it. It's a simple and quick way to cut your costs. *10% of customers could save up to £568. MoneySuperMarket data, average Ofgem consumption figures based on dual fuel, 2016

BORROWERS

Fixed rate mortgage

If you’ve got a fixed rate deal, your monthly payments WON’T change even though the base rate has increased, so you can rest easy for now.

However, you should prepare for steeper costs in future if you were planning on locking into another fix once your existing deal comes to an end.

Tracker mortgage

If you have a tracker mortgage, where the rate tracks the Bank of England base rate plus a stated percentage, your payments will almost certainly increase from next month or very soon after.

Your lender should notify you of any changes in the coming days.

If, for example, your deal tracks the Bank of England base rate plus another 2.50%, then before rates rose you’d have been paying a rate of 2.75%. Now the base rate has gone up from 0.25% to 0.50%, you’ll be paying 3.00%.

Variable rate mortgage

You’re likely to see your monthly repayments rise if you have a variable rate mortgage - one where the lender can change the rate at any time, regardless of what the Bank of England does with the base rate.

Most lenders will respond to the Bank of England move by replicating the rise in the base rate, so be prepared for an increase of 0.25% or even more.

This might take a couple of months to show on your statement, but your lender will contact you with details of any changes it is planning to make.

Personal loan

Personal loan rates have plummeted to record lows in recent months.

When the Bank of England cut interest rates to 0.25% in August 2016, the lowest rates available if you wanted to borrow between £7,500 and £15,000 (and had a good credit history) were around 4% APR Representative.

The past few months have seen rates as low as 2.7 % APR Representative if you’re looking to borrow this amount. But now that interest rates are on the up, expect these deals to disappear fast.

Most personal loans have fixed interest rates, so if this applies to you, your payments won’t change.

If you’re on a variable rate, you could see payments increase if your lender decides to up its rates, but you will be notified of any changes before they happen.

Overdraft

If you’re paying interest on an overdraft, you may suffer an increase following the base rate rise.

If you only dip into the red infrequently and by a relatively small amount, it might be worth considering an account which offers an interest-free overdraft buffer.

Credit card

Even though interest rates have been at rock bottom for several years, credit cards have continued to charge hefty standard annual percentage rates (APRs).

The good news is there are still plenty of lengthy low introductory rates available on both balance transfers cards and cards designed for making purchases, so you can still borrow interest-free if you play your cards right.

Make sure you pay off what you owe during the introductory period though, or you could be hit by steep interest charges when it ends.

Our Smart Search facility allows you to see which cards you’re likely to be accepted for - and it won’t alert potential card providers to the fact you’re checking out what’s available.

This matters because too much visible activity on your credit profile can result in you being marked down, which means you could have fewer cards from which to choose, and you may not have access to the best offers.

SAVERS

Rock-bottom savings rates have been a nightmare for savers who’ve struggled to find decent returns, but how much of an impact will Thursday's decision really have on your accounts?

A rise of 0.25 percentage points is not large by any measure, but after a decade of reductions, it at least signals a welcome change in direction for those who rely on their savings to generate an income.

It’s also worth noting that the government and Bank of England’s Funding for Lending Scheme (FLS) comes to an end in January 2018.

This is highly significant because the scheme provides funds to banks and building societies, which means they haven’t had to attract funds from savers. That in turn has enabled them to reduce interest rates on their savings accounts.

When FLS ends, banks will need to attract funds from the traditional source - savers - so will be competing for business with higher rates on savings products.

Individual savings account

If you save into a tax-free individual savings account (ISA) and your account pays a variable rate, you’ll have to hope your savings provider passes on some or all of the rate increase.

Not all of them pass on rate rises in full, so it’s worth monitoring your rate carefully.

If it doesn’t increase in the next few weeks, vote with your feet and transfer your savings into an ISA paying a better rate.

Remember that even if your provider does pass on the increase in full, you’re unlikely to feel any big benefit unless you have a significant amount of savings.

For example, if you currently have £1,000 sitting in a cash ISA paying 1.3% tax-free, you’ll be earning £13 in interest a year. If the base rate rise is passed on in full, your rate will go up to 1.55%, and you’ll earn £15.50 tax-free interest a year, an increase of just £2.50 over the year.

If you have £100,000 in cash ISAs paying 1.3% tax-free, you’ll currently be earning £1,300 in interest a year, which will now rise to £1,550, an increase of £250.

"As ever, the message is to shop around for the best deal and move your money accordingly."

Variable rate savings account

As with an ISA, your bank or building society is under no obligation to pass on the base rate increase if you have a variable rate savings account.

But there have already been some increases in recent weeks as lenders began to anticipate the Bank of England’s latest decision.

As ever, the message is to shop around for the best deal and move your money accordingly.

One word of warning. Many accounts come with an interest rate ‘bonus’ that is paid for a limited period - say, 12 months. After this time, the rate you get slouches back to a relatively disappointing level, at which point you should switch again.

Remember that you don’t have to use an ISA to get tax-free interest. Thanks to the Personal Savings Allowance, standard rate tax payers can earn £1,000 a year in interest without paying tax on it.

The figure for 40% taxpayers is £500 a year of tax-free interest. Those on the additional 45% rate do not receive the allowance.

Fixed rate savings accounts

If you hold money in a fixed rate savings account or fixed rate ISA, then your returns will remain the same, even though the base rate has increased.

You’ll only be able to benefit from higher rates once the fixed term of your account comes to an end, at which point you can move your money elsewhere.

Most fixed rate accounts levy a penalty if you want to move your cash out before the end of the fixed period, so this is rarely worth doing. You’ll need to check the terms and conditions if you are contemplating a move.

Now that rates have started to increase, be wary about locking into a fixed rate savings account for too long.

If the base rate continues to rise, then you could find yourself stuck in an account which ceases to be competitive.

Consider an interest-bearing current account

One option everyone should consider is switching to a current account which either pays a healthy rate of interest or which offers a meaty cashback incentive to switch.

If you can earn, say, £125 in hard cash switching current account, that’s the equivalent of a year’s interest on £10,000 at 1.5%.

Be aware that, with this sort of account, you usually have to pay in a certain amount each month (perhaps £1,000) and run two direct debits.

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