MILLIONS of homeowners are braced for more mortgage misery as the Bank of England prepares to hike interest rates to a new 15-year high.
Most economists expect the Bank’s Monetary Policy Committee (MPC) to lift the base rate by 0.25 percentage points to 5.25% today.
The last time it stood at 5.25% was in March 2008.
It would mark a smaller increase than the half-point rise pushed through at the last MPC meeting in June.
This is because there are signs that inflation has turned a corner.
Inflation was 7.9% in June, down from 8.7% in May and the lowest rate since March 2022, according to official figures from the Office for National Statistics (ONS).
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It means that rates – which are a tool used by the Bank to bring inflation down to its 2% target – may not need to climb as high as feared.
But another increase today would pile more pressure on borrowers who are already facing big increases in monthly bills thanks to mortgage rates moving higher.
And economists have warned that they cannot rule out a bigger rate hike on Thursday as the Bank still faces pressure to take the heat out of price and wage rises.
Investec Economics predicts a 0.5 percentage point increase, before pushing through a final quarter-point hike the following month.
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It comes amid signs that the UK economy is slowing under the weight of higher interest rates.
House prices fell at the fastest annual rate in 14 years in July, as housing affordability has been stretched for people looking to buy a home with a mortgage, Nationwide said.
The slowing market has had a knock-on effect on a number of housebuilders and builders’ merchants who have flagged much weaker demand for properties.
The MPC will produce new forecasts for inflation and gross domestic product (GDP) along with its rates decision.
It will shine a light on how likely the Prime Minister is to meet his target of halving inflation to about 5% by the end of the year.
Rishi Sunak said on Wednesday that inflation is not falling as fast as he would like, but that people can “see light at the end of the tunnel”.
Meanwhile, banks are under more pressure to pass rate rises onto savers.
Myron Jobson, senior personal finance analyst for Interactive Investor, said: “There might be a bit more urgency among banks and building societies to pass on the base rate rise to their savings products this time around as the Financial Conduct Authority (FCA) has recently gained new powers to take robust actions against those offering unjustifiably low rates.”
The FCA this week shared a 14-point action plan to make sure that savers are being offered better deals.
Here are the four things to look out for today.
1. Mortgage rates rising
Exactly how much more your bill will rise will depend on the type of mortgage you have.
Those on a fixed-rate deal are safe for now – but face a huge jump in borrowing costs when they come to remortgaging.
Lloyds Banking Group, the UK's biggest lender, said its customers who will be fixing to a mortgage deal over the rest of the year could face an average £360 increase in their monthly repayments.
But other mortgages, such as a tracker or standard variable rate (SVR) mortgage, could be impacted straight away.
There are 639,000 residential tracker mortgages outstanding.
Homeowners on variable-rate mortgages might not see their repayments go up straight away, but they will likely increase shortly after interest rates are hiked.
But the exact amount depends on your borrowing and your loan-to-value.
2. Credit card and loan rates could rise
The cost of borrowing through loans, credit cards and overdrafts could go up too, as banks are likely to pass on the increased rate.
Certain loans you already have like a personal loan or car financing will usually stay the same, as you've already agreed on the rate.
But rates for any future loan could be higher, and lenders could increase the rate on credit cards and overdrafts – although they must let you know beforehand.
You can cancel a credit card if you want and will have 60 days to pay off any outstanding balance.
The average interest rates on personal loans are already at their highest rate since October last year.
3. Savers could get better rates
Savers could get some further relief as banks continue to battle it out by offering market-leading interest rates.
A rate rise is generally good news for savers, especially after a long stretch of getting very low rates on their money.
Another rate rise could see banks pass on higher rates to savers – though they are usually much slower to act than with passing on higher rates for borrowing.
Anyone currently getting a low rate on easy access savings could find it's worth looking around for a better rate after any rate rise and moving their money.
Right now, savers can get up to 4.55% in easy-access savings accounts and up to 6.1% in certain fixed bond accounts, according to MoneyFactsCompare.
4. Inflation will remain high for now
Rising inflation indicates that the cost of goods and services is rising, so your money won't count for as much as it did before.
But to tackle inflation, the Bank of England opts to raise interest rates, which reduced spending power and demand subsequently bringing prices down.
And as part of that announcement, the BoE will also say what it thinks about the economy and make fresh predictions for inflation and GDP.
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The UK's rate of inflation dropped more than expected to 7.9% in June this year.
But despite the figures slowing, it still means the prices of everyday essentials are rising more than the BoE would like, which has a 2% target for inflation.
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