How does this affect savers and borrowers?
The rise in interest rates — the second straight rise — is expected to have the greatest impact on mortgage borrowers, with adjustable-rate homeowners likely to see interest on their repayments rise accordingly.
The Nationwide Building Society, one of the UK’s largest mortgage lenders, has previously announced that it will increase its base rate (sometimes referred to as the standard variable rate) and tracker mortgage rates from March 1st.
The increase for savers should mean a more generous rate could be in the offing. However, experts are skeptical that we will see this anytime soon.
Anna Bowes, co-founder of Savings Champion, said: “While this should be great news for savers, their celebrations may have to be put on hold if the behavior of savings providers after December’s interest rate hike gives any indication of what is to come.
“After nearly two years of interest rates at an all-time low of 0.10%, we hoped that savings providers would treat their desperate savings customers fairly – unfortunately, but not entirely unexpectedly, this is not the case.”
Figures from Saving Champion show that 28 of the 144 savings providers, or just 19% of the market, have announced changes to at least some of their savings accounts following December’s base rate hike.
Anna’s concern was shared by Laura Suter, Head of Personal Finance at AJ Bell, who said: “While banks are very quick to pass on any increase in the base rate to their mortgage customers, savers will have to wait longer and many will not see any increase at all.”
Laura’s advice was to keep scouring the market for a better deal for your savings. It might take more work, she explained, but it might be worth it.
“After a rate increase, we usually see an increase in rates and more competition in the best buy charts as carriers try to reach the top, but you have to switch to get a better deal,” she explained.
“Anyone thinking of fixing their savings rate needs to consider the bank’s plans to keep raising rates from here, because if you set a rate now, you’re missing out on future increases in the base rate.”
If you have a mortgage and are using either your bank’s standard variable rate or a tracker deal, chances are you’ll be hit by the hike very soon.
Fixed price customers are protected from increases until their offer expires.
You can find out much more about the impact on your mortgage in This post from our sister title What Mortgage.
According to Laura, today’s rate hike could also affect the indebted. Those who borrow with credit cards or use personal loans or store cards might also see their interest rates increase.
She said: “Banks are quick to pass on any rate hike to customers if they benefit, so those with debt should be prepared for higher costs.
“Anyone with debt needs to figure out if they can switch to cheaper credit and get on it quickly before interest rates go up. See if you can transfer credit card loans to a 0% balance transfer deal, or see if you’re eligible for an interest-free overdraft.”