The Bank of England has raised the base rate from 0.5% to 0.75% - only the second rise in over a decade. Here's what it means for your finances, including the very latest on how individual banks' mortgage and savings rates are changing.
The base rate is the Bank of England's official borrowing rate - ie, what it charges other banks and lenders when they borrow money - and it influences what borrowers pay and savers earn. The increase announced on Thursday follows a rise last November from 0.25% to 0.5%.
The Bank's Monetary Policy Committee (MPC) voted 9-0 to raise the rate, and said that future rises "are likely to be at a gradual pace and to a limited extent".
Here are the key need-to-knows for your finances:
- Many mortgage rates will rise. If you're on a standard variable rate mortgage, your rate is very likely to go up, and if you're on a 'tracker' mortgage - which as the name suggests tracks the base rate - it definitely will. So if you're a mortgage holder, urgently check if you can save £1,000s by remortgaging before the best deals disappear. If you're on a fix, your rate won't change for now, but when it ends and you remortgage rates may have risen. See our full mortgages analysis below plus the latest on what lenders are now doing.
- For savers, the rate rise is generally good news. It should push best-buy rates up on both savings accounts and ISAs, so if that happens you may be able to earn more by ditching and switching. Banks may also increase variable rates, though it's far from guaranteed - if you're on a rubbish rate currently, you may be best off switching now. See our full savings analysis below plus the latest on what banks are now doing.
- Loans will be mainly unaffected - though rates for new borrowers could rise. If you've a loan currently, it's almost certainly at a fixed rate, so there's no impact. But best-buy rates for new borrowers could rise soon. See our full loans analysis.
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'Bad news for mortgage holders... but savings rates should creep up'
Guy Anker, deputy editor of MoneySavingExpert.com, said: "For savers, the rise should act as a powerful trigger to review your accounts and ditch and switch if a better deal appears. Many put up with paltry 0.1% returns Ė or worse. Even without the base rate jump it was possible to earn much more than that, but the best deals will hopefully Ė but not definitely Ė creep up.
"So if you're being ripped off, instead become an active switcher and make them pay you a decent return.
"Even if you earn what you think is a decent interest rate, check in a couple of weeks once the dustís settled if it's still good relative to whatever the best buys are, as thereís no guarantee your bank will pass the rise on to you.
"Yet this is bad news for mortgage holders, especially those on a variable rate which will now rise in price. The cost of the cheapest new deals for switchers or homebuyers will also likely jump.
"That means it's vital everyone on a variable deal or whose fix is close to ending checks if they can save £1,000s by remortgaging, as the longer you wait the higher the cost of new deals may get."
If you're on a fixed-term mortgage you won't see any immediate change - though if your deal ends soon, the one you move to may cost more.
If you're on a standard variable rate (SVR) or 'discount' mortgage, your mortgage is likely to rise by 0.25%, as most loosely follow the base rate. Such a jump could cost £180+/yr more per £100,000 of mortgage. However SVRs are set by individual lenders so you'll need to check what yours is doing and when any changes will come into effect. About a quarter of mortgages - roughly 1.8 million - are on an SVR.
If you're on a tracker mortgage your rate will definitely rise by the same amount as the base rate - 0.25%. Exactly when this happens will depend on your lender though - some have already put them up, while others have said they will increase in September. Roughly 1.3 million mortgages are trackers.
See below for the very latest on what each individual lender is doing.
The key points for mortgage holders are:
- If you're on your lender's standard variable rate, you're likely massively overpaying. The average SVR is 4.24%, yet the top two-year fixed mortgage right now is just 1.35% - the difference in cost is over £2,500 per year on a typical £150,000 repayment mortgage with 25 years remaining. Even with switching fees you'd likely make a massive saving.
- If you need to remortgage, this could be a unique window of opportunity. If you're looking to get a better deal for your existing mortgage, it's worth looking ASAP - as rates may be about to rise. The rates of the best new fixed deals have already started creeping up in the last few months - likely because lenders set them based on City swap rates (long-term predictions of interest rate trends), which have been pointing upwards.
Here's what to do now if you're a mortgage holder:
- Dig out the details of your current mortgage. Find the rate, if it's fixed or variable, when the intro deal ends, what the term is, if there are early exit penalties, and crucially work out your current loan to value - the proportion of your property's value you're borrowing.
- Take two minutes to benchmark the best deal. Our Mortgage Best-Buy Comparison includes all deals available to brokers, and direct-only deals - and it factors in fees.
- See your likely saving. Once you know prospective new deals, use our Ultimate Mortgage Calculator which has lots of tools to show your saving.
Check if you're eligible. What matters is if your credit score is good, if you can afford repayments and if you meet the lender's criteria.
What each lender decides to do in the wake of any interest rate change is key. We are regularly checking with providers what changes they're making to tracker and SVR mortgages, and when they're making it.
What mortgage providers are doing for existing customers
|Provider||Change to tracker mortgages||Change to SVRs|
|Atom Bank||N/A||Under review|
|Bank of Ireland||0.25 percentage point increase from 3 Aug for new customers and 1 Sep for existing customers||Under review|
|Bank of Scotland||0.25 percentage point increase from 1 Sep||Under review|
|Barclays||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Sep|
|Beverley BS||0.25 percentage point increase from 1 Sep||Under review|
|Birmingham Midshires||0.25 percentage point increase from 1 Sep||Under review|
|Bradford & Bingley||0.25 percentage point increase from 1 Sep or 1 Oct depending on T&Cs||Under review|
|Britannia||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Sep|
|Clydesdale||0.25 percentage point increase, timing depends on T&Cs||Under review|
|Co-op Bank||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Sep|
|Coventry BS||Under review but any change will apply from 1 Sep||Under review but any change will apply from 1 Sep|
|First Direct||0.25 percentage point increase from 3 Aug||Under review|
|Halifax||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Sep|
|Hampshire Trust Bank||Under review||Under review|
|HSBC||0.25 percentage point increase from 3 Aug||0.25 percentage point increase from 1 Sep|
|Kent Reliance BS||0.25 percentage point increase, date under review||Under review|
|Leeds BS||0.25 percentage point increase from 3 Aug||Under review|
|Lloyds||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Sep|
|Nationwide||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Sep|
|NatWest||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Sep|
|Newcastle BS||0.25 percentage point increase from 1 Sep||No change|
|NRAM||0.25 percentage point increase from 1 Sep or 1 Oct depending on T&Cs||0.25 percentage point increase from 1 Sep or 1 Oct depending on T&Cs|
|Paragon||0.25 percentage point increase, timing depends on T&Cs||Under review|
|Post Office||0.25 percentage point increase from 1 Sep||Under review|
|Principality||Under review||Under review|
|RBS||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Sep|
|Sainsbury's Bank||N/A||Under review|
|Santander||0.25 percentage point increase from 1 Sep||Under review|
|Secure Trust Bank||Under review||Under review|
|Skipton BS||0.25 percentage point increase within 14 days||0.25 percentage point increase from 1 Sep|
|Tesco Bank||0.25 percentage point increase from 3 Aug||Under review|
|TSB||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Sep|
|Ulster Bank||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Sep|
||0.25 percentage point increase from 1 Oct||Under review|
|West Brom BS||0.25 percentage point increase from 1 Sep||0.25 percentage point increase from 1 Oct|
|Yorkshire BS||Under review||Under review|
For savers, rate rises are generally good news - we've recently seen a slight revival in savings rates, and the base rate rise could push best-buy savings rates up further. It's worth noting though that our analysis a few weeks ago found top savings rates barely rose following last November's base rate rise, so the impact of this base rate rise could be limited.
The rate could affect all types of savings accounts, including traditional savings accounts, savings accounts that are linked to your current account and ISAs.
If you're on a fixed rate account, the rate is locked in for a set amount of time and won't change. If you've a variable rate account, then your rate could go up, though this isn't guaranteed - each bank decides on its own increase and the timing of when this happens, so check below for the latest on what banks are doing.
If you're earning a decent rate currently, it may be worth waiting a couple of weeks to see if best-buy rates rise before switching. If you earn anything less than 1% now though, consider ditching and switching now.
These are our current top picks, but they could change at any time - for a full round-up see our Top Savings guide:
- Up to 1.4% easy access. Here you can withdraw cash when you want. The current best is Coventry BS's 1.4% rate, though it only allows three penalty-free withdrawals per year. Next best is Birmingham Midshires at 1.35%, though you need a cheque book to make your first deposit. As is the nature of the best deals, the rates on both will plummet after 1yr so remember to switch again then.
- Top 1yr fixes up to 2.15% - or £50 bonus on 1.95%. With a fixed savings account, from the moment your money goes in it's locked away. The top 1yr and 2yr fixes rose to 2.15% and 2.25% respectively on Friday with Wyelands Bank. Right now, app-based Atom Bank pays 2.05% for 1yr, though if you want a big name, Post Office pays 1.7%. You can also open a 1.95% account with ICICI Bank via 'savings marketplace' Raisin, which offers new customers up to £80 cashback on top. Note, as there's less flexibility to move, if rates rise again these would be less competitive, so fixing for a shorter period may be best.
- Up to 5% on smaller amounts. Some current accounts offer high interest if you meet certain criteria. Nationwide offers 5% fixed for a year on up to £2,500 (1% after), while some current accounts also offer regular savings accounts where you can save up to £200-£300/mth for 1yr (as well as paying up to £200 to switch to them). Top 5% payers are First Direct, HSBC, M&S Bank, Santander & Nationwide.
If you followed the tip in this week's email and opened a 2%+ fixed savings account but DIDN'T put cash into it, now is the time to start looking around and see if you can find a better rate.
What each bank and building society decides to in the wake of any interest rate change is key. We are regularly speaking to all the major players to find out what changes they're making and when they're making them.
How the savings rate on your existing account will change
|Provider||Variable savings account rates||Current account rates|
|Bank of Cyprus||Under review||N/A|
|Bank of Ireland||Under review||Under review|
|Bank of Scotland||Under review||Under review|
|Barclays||Under review||Under review|
|Beverley BS||0.25 percentage point increase from 28 Aug||N/A|
|Birmingham Midshires||Under review||N/A|
|Clydesdale||Under review||Under review|
|Co-op Bank||Between 0.1 and 0.28 percentage point increase on some accounts from 30 Aug||N/A|
|Coventry BS||Under review but any change will apply from 1 Sep||Under review but any change will apply from 1 Sep|
|First Direct||Under review||N/A|
|Halifax||Under review||Under review|
|Hampshire Trust Bank||Under review||N/A|
|HSBC||0.1 percentage point increase for some accounts (0.25 percentage point increase on children's savings accounts and Help to Buy ISA) from 3 Sep||N/A|
|Kent Reliance BS||Under review||N/A|
|Leeds BS||Under review||N/A|
|Lloyds||Under review||Under review|
|Nationwide||Up to 0.1 percentage point increase for some accounts (1) (0.5 percentage point increase on Help to Buy ISA and Smart children's savings account) from 30 Aug||No change|
|NatWest||Between 0.05 and 0.2 percentage point increase on some accounts (0.5 percentage point increase on Help to Buy ISA) from 3 Sep||N/A|
|Newcastle BS||0.25 percentage point increase from 3 Aug for accounts tracking base rate, no change to the rest "for now"||N/A|
|Paragon||Rates on "selected" products will rise to match current on-sale products from 1 Sep||N/A|
|Post Office||Under review||0.25 percentage point increase from 3 Aug|
|Principality||Under review||Under review|
|RBS||Between 0.05 and 0.2 percentage point increase from 3 Sep||N/A|
|Sainsbury's Bank||Under review||N/A|
|Santander||0.25 percentage point increase from end of Aug for accounts tracking base rate, the rest under review||Under review|
|Secure Trust Bank||Under review||N/A|
|Skipton BS||0.25 percentage point increase "before 17 Aug" for all on-sale products including Lifetime ISA||N/A|
|Tesco Bank||Under review||Under review|
|TSB||0.1 percentage point increase (0.25 percentage point increase for children's savers) from 1 Sep||No change|
|Ulster Bank||Under review||N/A|
||0.25 percentage point increase from 1 Sep for some accounts, others under review (2)||Under review|
|West Brom BS||Up to 0.25 percentage point increase within 7 working days for accounts tracking base rate or 1 Oct for the rest||N/A|
|Yorkshire BS||Under review||N/A|
|(1) For some tiered accounts, there is no rate rise for those with less than £10,000 (2) 0.25 percentage point increase from 1 Sep for accounts tracking base rate and children's savings, Help to Buy ISA, Saving to Buy, Saver Reward and Regular Saver.|
If you've already got a loan, it's almost certainly at a fixed rate, in which case there's no impact. But for those hoping to get one in the future, it's worth noting rates could rise as a result of the base rate rise and pressure on lenders to reduce borrowing.
Yet this isn't clear-cut. A variety of factors impact loan rates, including competition between lenders - and when lenders launch loan rates, they sometimes set how much they'll lend at that rate, and until that deal is 'sold out', those rates won't rise. So it may be some time before we see any moves.
If you NEED to borrow it's still sensible to do it soon - but only if it's planned, budgeted and affordable, or the pain will likely outweigh the gain.
With loans it's all about whether you'll be accepted, so to check, use our Loans Eligibility Calc which shows which you've best odds of getting, without hitting your creditworthiness. See our Cheap Personal Loans guide for a full round-up of all the current best-buys.
What does the base rate rise mean for student loan repayments?
One lesser-known impact of the base rate change is that it could help determine some student loan interest rates.
The interest rate for those on Plan 1 loans i.e. everyone who started higher education between 1998 and 2011, and Scottish and Northern Irish students starting after 2012, is the LOWER of the following:
Either... the Bank of England base rate, plus 1%...
Or... the rate of inflation. This is fixed for a year on 1 September based on the rate of inflation (RPI measure) from the previous March.
March 2018's inflation rate was 3.3%, so the interest rate will likely be 1.75% from September, although this will only be officially confirmed later this month.