MILLIONS of homeowners are facing higher mortgage bills as the Bank of England is poised to raise interest rates this week.
the central bank The base rate is expected to increase by 75 basis points on Thursday, from 2.25% to 3%.
The Bank of England (BoE) has already raised the base rate seven times this year.
Interest rates last rose from 1.75% to 2.25% on September 22.
Major banks use the BoE base rate to calculate the interest rates they offer to customers.
It means there could be more misery for households already dealing with a cost of living crisis.
Lifting Interest rates it’s meant to encourage people to save, rather than spend, which in theory should help rein in runaway inflation.
The BoE predicts that inflation it will peak at 11% in October and then stay above 10% for a few months afterward.
Here are the four things to watch for this Thursday.
1. Increased mortgage rates
According to Hargreaves Lansdown, the average SVR mortgage holder could see their payments increase by £1,476 a year if the base rate hits 3%.
This will mean that a household with a 25-year £250,000 mortgage with an average SVR rate of 5.4% will see their monthly payments increase by £123.
And about 800,000 homeowners in a mortgage tracker directly tied to the base rate you will see an immediate increase.
Exactly how much more your bill will depend on the type of mortgage you’ve got.
Those with a fixed rate are safe for now, but face a big increase in borrowing costs when it comes to remortgaging.
About 2.2 million borrowers are expected to reach the end of a deal they arranged when the base rate was at a record low of 0.1%.
In a fixed offer, you lock in a rate for a certain period of time that keeps payments the same.
Sarah Coles, a personal finance expert at Hargreaves Lansdown, said: “For anyone with an adjustable rate mortgage, like a standard adjustable rate or a follow-on mortgage, much of this rate increase is likely to be quickly passed on to your monthly payments.
However, Nick Morrey, technical director at mortgage broker Coreco, said: “We don’t expect much to happen to mortgage rates if the base rate hits 3%.
Nick says this is due to the fact that rates have gone up so much and a 0.75% increase in points has already been included.
Lenders raised rates last month on the assumption that the base rate would peak at 5% next year.
But Nick said: “The base rate is now expected to peak at 4% and we are now seeing small reductions in mortgage rates across the board.”
Some fixed mortgage offers have seen their rates reduced in recent days.
The Sun reported that a series of lenders began closing their deals In the past week.
The two-year average fixed mortgage rate is now down 0.17% points from its peak on October 20, from 6.65% to 6.48%.
And five-year average fixed mortgage rates also fell 0.18 percentage point, from 6.51% to 6.33%.
predictions come later mortgage rates hit 14-year high last month.
The fallout from the mini-Budget led to the pound plummeting against the dollar to a low of $1.03 on September 26.
And led the Bank of England to warn that Interest rates it would rise to 6% next year.
2. Credit card and loan rates could rise
The cost of borrowing through loans, Credit cards and overdrafts could also rise, as banks are likely to pass on the rate increase.
Certain loans you already have, like a personal loan or car financing, will generally stay the same, since you’ve already agreed on the rate.
But rates on any future loans could be higher, and lenders could increase credit card rates and overdrafts, though they must tell you in advance.
You can cancel a credit card if you wish and you will have 60 days to pay any outstanding balance.
Average interest rates on personal loans are already at their highest rate since October last year.
individuals waiting borrowing £3,000 over the next three years faces an average rate of 15.2%, compared to 14.3% at this time last year, according to MoneyFacts.
The average rate on all types of credit cards, including fees, hit a new high of 29.8%, according to MoneyFacts, up from 25% last October.
3. Savers can get better rates
Savers could get more relief as banks continue to struggle to offer market-leading interest rates.
A rate increase is generally good news for saversespecially after a long period of getting very low rates on your money.
Along with low rates, high inflation can erode the value of any savings you have.
So if you have £100 in the bank this year and inflation is 10%, the real purchasing power of that money drops to £90 next year.
Another rate hike could see banks pass on higher rates to savers, though they are typically much slower to act than passing higher rates on loans.
This means that savings rates are more likely to rise slowly rather than change immediately.
Sarah Coles said: “For savers, any rate hike is unlikely to provide a huge overnight shock where rates rise significantly.
“With the big high street banks flush with lockdown savings, they are happy to continue offering measly rates, usually below half a percent.
“It means it’s up to smaller, newer, online banks to raise rates.”
Anyone currently getting a low rate on easily accessible savings might find it worthwhile to shop around for a better rate after any rate increase and move their money.
Right now, savers can earn up to 2.81% on easy access savings accounts and up to 5.1% on certain fixed bonus accounts, according to MoneyFacts.
we have previously explained how to find the best savings rates.
4. Inflation will stay high for now
Rising inflation indicates that the cost of goods and services is rising, so your money it won’t count as much as before.
But to deal with inflation, the Bank of England chooses to raise interest rates, which reduces purchasing power and demand, which drives prices down.
And as part of that announcement, the BoE will also say what it thinks about the economy and make new predictions for inflation and GDP.
the United Kingdom the inflation rate reached 10.1% in September, driven by rising food and energy prices.
Inflation last hit 10.1% in July, the biggest rise in inflation since 1997.
This made the governor of the Bank of England (BoE) fear that the UK economy could be heading for a 15-month recession.
The BoE predicts that inflation it will peak at 11% in October and then stay above 10% for a few months, even if it raises interest rates in the meantime.
When a country enters a recession when its economy contracts for a sustained period of time.
It’s calculated using something called Gross Domestic Product (GDP), which in the UK is the value of all goods and services added together in pounds.
Generally speaking, if GDP has fallen for two quarters (or six months), a country is said to be in a recession.
The central bank had previously projected the economy to grow in the current financial quarter, but said it now believes gross domestic product (GDP) will fall 0.1%.
It comes after a reported 0.2% drop in GDP in the second quarter and would mean the economy is currently in recession.
job losses they are a common symptom of a recession, as companies try to cut costs to stay afloat.
Companies can also go into administration or go bankrupt.
The 2008 recession, for example, saw the loss of major stores including music retailer Zavvi, clothing store Principles and stalwart Woolworths.