Interest rates paused at 5.25% - how it affects your mortgage and savings
The Bank of England has held its base rate once again at 5.25% - the fourth time in a row where it has decided not to increase borrowing costs.
But what does this mean for your money? The base rate influences what banks and lenders charge you to borrow money. Millions of people have seen their mortgage rates soar over the past two years, due to how many times the base rates has previously been increased, while the rates applied to credit cards and loans have also become more expensive.
So the news of another interest rate pause today will provide welcome relief for those who have been hit by rising costs - however, it's important to note that the base rate remains at its highest level in 16 years and mortgage holders who are yet to come off cheaper fixed rate deals are yet to see their payments go up.
Savings are also affected by the base rate and there has been a massive comeback in competitive deals over the last year, although they have dipped slightly compared to the start of the hikes. The base rate stood at just 0.1% in December 2021 and had been increased 14 times in a row until September 2023, when the Bank of England finally paused its round of rate hikes.
The base rate has now remained at 5.25% for the last four meetings of the Monetary Policy Committee (MPC). The Bank of England is trying to bring down inflation, which hit a 41-year high of 11.1% in October 2022. Inflation is a measure of how prices have changed over time.
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The theory behind raising interest rates is that it makes borrowing more expensive, so people will then spend less and this should drive down demand and prices. It has come down since then and now sits at 4%, which is why the base rate has been paused - however, it is still double the Bank of England target of 2% inflation.
How does it affect your mortgage
It all depends on what type of mortgage you have. If you have a tracker mortgage, your monthly repayments rise and fall in line with what happens to the base.
As the base rate has been paused today, it means there will be no immediate change in repayments for someone with a tracker mortgages. However, those on a tracker mortgage are now paying £540 more compared to December 2021 following the series of rate hikes that have already happened.
If you have a standard variable rate (SVR) deal, it is down to your lender to decide whether your rate will go up when the base rate changes. You'll usually be moved on to the SVR of your existing lender once your current mortgage deal ends.
Compared with December 2021, those on a SVR are paying £299 more a month following the previous base rate increases. Around 1.4 million people are on tracker and SVR deals.
Fixed rate mortgages are not affected by the base rate while you're still in your fixed rate period, as you've agreed to pay a certain for a set period of time. However, millions of homeowners will pay more when they come to remortgage. Around 1.6 million mortgage deals are due to end and roll over onto new agreements by the end of 2024, according to UK Finance.
Renters have seen increased costs as well, as many landlords have been putting up rents because their mortgage costs have gone up. It means like mortgage holders, some renters are now also paying hundreds of pounds more each month.
How does it affect credit cards and loans
Interest rates on credit cards have jumped over the past year, as lenders have put their borrowing costs up due to the previous base rate rises. The average credit card purchase APR last month was 34.8%, according to Moneyfacts.
Credit card rates are normally variable, which means they can change over time. If your credit card is linked to the base rate, then how much you pay back in interest can be affected when it rises or falls. Check your terms and conditions to see if this applies to you, and if it does, you should get 30 days’ notice if your rate is changing.
If you have credit card debt, it is worth checking if you can move the money you owed to a 0% interest credit card so the interest you're paying in paused for a set period of time. However, the lengths on offer have also been cut over the past year.
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Interest rates on personal loans and car financing are normally fixed - but do check with your lender to be sure. Again, the rates on new loans are higher now compared to last year, meaning it is now more expensive to borrow.
How does it affect your savings
Savings rates have seen huge improvements, due to the previous base rate increases - and although they have dipped since their peak, you can still get deals that are above the rate of inflation. Savers are urged to act quick though before rates go down further.
The best easy-access rate right now is 5.15% from Coventry Building Society, although there are some restrictions, such as you can only make three withdrawals a year. The best-paying fixed rate account is from SmartSave, which is paying 5.16% fixed for one year.
Regular saving accounts pay even more than this - but you're normally limited to how much money you can save each month. The Nationwide linked saver that pays 8% fixed for one year - but you can only deposit up to £200 each month.
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