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The Bank of England could hike interest rates today: What will it mean for you?

November 3, 2021

The Bank of England will decide today on whether to raise interest rates for the first time in three years.

Speculation has been growing that Bank rate will increase from 0.1% to 0.25% in response to rising inflation.

The rate was cut to a record low of 0.1% in March last year as lockdowns put the UK economy into deep freeze.

Shoppers wearing face masks on Oxford Street, in central London, as the Department of Health and Social Care is calling upon eligible people to get their covid-19 booster vaccinations. Picture date: Friday October 22, 2021.
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Demand has been returning as restrictions ease

But as restrictions are eased, demand is returning and, with supply chains strained too, inflation has been increasing.

That has put pressure on the Bank to hike rates – the tool traditionally used by officials to keep a lid on spiralling prices.

If interest rates do rise, what will it mean for you?

BORROWERS

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Industry body UK Finance estimates that 26% of residential mortgages are on variable rates, translating to around 2.2 million borrowers.

Of those, some 850,000 have tracker deals directly linked to the Bank rate and 1.1 million are on lenders’ standard variable rates (SVRs), which might be expected to be increased too in response to any Bank of England hike.

File photo dated 02/10/12 of an estate agent's sold sign outside a property. The average UK house price has surged by 24,000 during the past year of coronavirus lockdowns, according to the Office for National Statistics (ONS). Issue date: Wednesday May 19, 2021.
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Mortgage borrowers could face higher costs

A 0.15 percentage point increase for a borrower with a typical £250,000 mortgage would add £228 a year to repayments, according to figures from investment platform AJ Bell.

The 74% of home loans where rates have been fixed for a set period – which include 96% of those taken out since 2019 – will not be affected immediately.

However, analysis by financial information website Defaqto shows that, in anticipation of a rate hike, ultra-low rate fixed deals have been disappearing from the market in recent months.

It found that on 25 October there were 82 fixed-rate mortgages available at 0.84% to 0.99% but that by Tuesday this week this had fallen to 22.

SAVERS

Savers have been squeezed by ultra-low rates, which mean the value of their nest eggs is not keeping up with inflation.

According to Moneyfacts.co.uk, the average easy access savings account on the market pays 0.19% while the average easy access ISA pays 0.26%.

That compares with 0.64% and 0.94% averages for those two savings product types three years ago.

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Savers have been squeezed by ultra-low interest rates

Locking your money away for a fixed period can mean a better deal.

According to AJ Bell, the top two-year fixed rate is currently paying 1.76%, compared to the market-leading easy access savings rate of 0.65%.

For the two-year deal, that fixed rate would yield £355.10 in interest by the end of the period.

A 0.15 percentage point increase would add an extra £30.

But Sarah Pennells, consumer finance specialist at Royal London, cautioned that there was no guarantee that savings rates will rise straight away in response to a Bank hike.