Bank of England announces key interest rate decision – see how your mortgage, credit card and savings are affected
THE Bank of England has left interest rates unchanged for the sixth consecutive time.
Decision-makers on the Bank’s Monetary Policy Committee (MPC) have left the base rate at a 16-year high of 5.25% today.
High street banks and lenders use the Bank of England (BoE) base rate to set the interest rates it offers customers on mortgages, loans and savings.
The bank rate previously increased from historic lows of 0.1% in December 2021, pushing up mortgage rates for millions of households – but giving savers better returns.
Higher rates are meant to dampen demand and spending to tackle high inflation.
Since September 2023, the bank rate has been held at 5.25% as inflation has slowed.
However, the easing cost of living crisis has left experts and homeowners anticipating that the Bank of England will cut rates.
Below, we’ve explained exactly what another hold on rates means for your finances.
What does it mean for my mortgage?
If interest rates remain unchanged, it’s unlikely to have an effect on your current mortgage rate.
Those on a fixed-rate deal will not see any change to rates as they are locked in at a set rate for a set period.
Those on tracker rates won’t see a change as the rate stays the same.
This type of mortgage is tied directly to the BoE base rate and can rise and fall at any time.
Standard variable rate (SVR) mortgages are unlikely to change either, as the BoE rate has not changed.
However, it’s important to remember that any changes are completed at your lender’s own discretion.
What is the base rate and how does it affect the economy?
NINE members of the Bank of England's Monetary Policy Committee meet eight times each year to set the base rate.
Any change to the Bank’s rate can have wide-reaching consequences as it directly influences both:
- The cost that lenders charge people to borrow money
- The amount of savings interest banks pay out to customers.
When the Bank of England lowers interest rates, consumers tend to increase spending.
This can directly affect the country’s GDP and help steer the economy into growth and out of a recession.
In this scenario, the cost of borrowing is usually cheap, and the biggest winners here are first-time buyers and homeowners with mortgages.
But those with savings tend to lose out.
However, when more credit is available to consumers, demand can increase, and prices tend to rise.
And if the inflation rate rises substantially – the Bank of England might increase interest rates to bring prices back down.
When the cost of borrowing rises – consumers and businesses have less money to spend, and in theory, as demand for goods and services falls, so should prices.
The Bank of England is tasked with keeping inflation at 2%, and hiking interest rates is a way of trying to reach this target.
In this scenario, the losers are those with debt.
First-time buyers will lose out to cheaper mortgage rates, and those on tracker or standard variable rate mortgages are usually impacted by hikes to the base rate immediately.
Those on a fixed-rate deal tend to be safe if they fixed when interest rates were lower – but their bills could drastically increase when it’s time to remortgage.
The cost of borrowing through loans, credit cards and overdrafts also increases when the base rate rises.
However, the winners in this scenario are those with money to save.
Banks tend to battle it out by offering market-leading saving rates when the base rate is high.
What does it mean for credit card and loan rates?
Again, when the base rate is frozen, your lender will unlikely change the rates offered on your credit card or personal loan.
But certain loans you already have, like a personal loan or car financing, will usually stay the same anyway, as you’ve already agreed on the rate.
When the base rate is hiked, the cost of borrowing through loans, credit cards, and overdrafts can increase, as banks are likely to pass on the increased rate.
However, it’s important to note that if your lender changes your credit card rate, you can still cancel as long as you pay off any outstanding balance within 60 days.
How to cut the cost of your debt
IF you're in large amounts of debt it can be really worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance on a regular basis – knowing your spending patterns is the first step to managing your money
Work out your budget – by writing down your income and taking away your essential bills such as food and transport
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
Pay off more than the minimum – If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
Pay your most expensive credit card sooner – If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
Prioritise your debts – If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay
Get advice – If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further
Groups like Citizens Advice and National Debtline can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
What does it mean for my savings?
The Bank of England’s interest rate also affects how much savers can earn on their money.
Savers are the main group that have benefited from the last 14 bank rate rises.
Banks tend to battle it out by offering market-leading interest rates.
However, now that rates have been frozen six times, banks will continue to use this to their advantage and maintain rates at their current levels.
There are still a number of good deals on the market, and experts have warned those with low paying accounts to shop around.