Following the first increase in the Bank of England’s base rate in over 10 years, MoneySuperMarket’s money expert Sally Francis here provides some guidance for people who might be affected.
Sally said: “There’s been very little movement in the Bank of England base rate since 2009 so it’s understandable that most Brits aren’t sure how a shift could affect their finances. The 0.25% rise might seem small, but it could pave the way for a string of increases that could impact some of the biggest bills. We’re encouraging people to take control of their finances today and learn how any future changes could affect their money.
“A rise in the base rate, coupled with the end of the Funding for Lending scheme – a Bank of England incentive for financial institutions to borrow cheaply from it – early next year is good news for savers, but if you’re on a tracker mortgage your monthly instalments will rise as soon as any base rate increase is announced. If you’re on a capped or discount mortgage, you could also see increases so acting immediately could save you thousands in the long run, especially if base rate continues to rise. Switching to a fixed rate mortgage ensures that your monthly repayments stay the same for the duration of your fixed period, providing certainty and stability in your finances.”
For those with variable mortgages, the base rate rise might lead to higher monthly repayments, so here are MoneySuperMarket’s top tips:
- Cheaper mortgage – If you’re on a variable rate mortgage, you could switch to a cheaper deal. But you might incur fees and charges, so work out whether it’s really going to save you money
- Offset option – You could ask your lender about ‘offsetting’ your mortgage. This is where your savings and current account are stacked up against what you owe, and you’re only charged interest on the balance. Mortgage = £200,000, savings = £15,000 – you pay interest on £185,000
- Switch energy – If you’ve never switched provider or haven’t done so for several years, you’re probably on a standard variable rate tariff. Switching to a fixed rate deal could save you hundreds of pounds a year
- Don’t auto renew – Car and home insurers love it when you renew with them. Instead of rewarding your loyalty they often punish you with a price hike. So be a new customer every year and get the best deal in the market.
- Max your bank account – Been with the same bank for years? There’s a new breed of current account that pays interest or gives rewards for certain types of spending. And you might get a £100+ cash incentive to switch.