Urgent briefing: First UK base rate rise in a decade
At midday today (Thu) the Bank of England announced an increase in the base rate from its historic low of 0.25% to 0.5%. This is the first rise in over a decade and likely to signal the beginning of the end of ultra-low interest rates.
For many under 30 it's likely to be the first time in your economically active life you've experienced a rise. Even if older, you may have forgotten the drill. So before worry, panic and misinformation gets out, we wanted to send you a special briefing, as a rare addition to the normal MSE weekly email, on what and what not to do.
1. MORTGAGE HOLDERS
Urgently check if you can save £1,000s by remortgaging before the best deals disappear
Those on fixes won't see any change, though if your deal ends soon, the one you move to may cost more. If you're on a variable or tracker your payments will rise, probably, but not definitely, by 0.25 percentage points. Such a jump could cost £200/yr more per £100,000 of mortgage. To help, as soon as each major lender announces its rise, we'll add the details to our...
- On your lender's standard variable rate? You're likely massively overpaying. About a third are. The average SVR is 4.5%, yet the top two-year fixed mortgage is at 1.09% - the difference in cost is more than £3,000 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 a new 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 rate at which new fixed deals is set has already started to creep up - as lenders set them based on City swap rates (long-term predictions of interest rate trends), and these have been pointing upwards.
But most lenders set aside a tranche - say £30m worth - that they're willing to loan at the current rate, so those deals stay till that tranche is gone. While we don't know for certain that rates will keep rising, on the balance of probability it's likely. So this may be the last chance to get a super-cheap mortgage, though no promises.
So everyone check ASAP if you can save. Here's why, as @MatthewOgram tweeted: "Used your remortgage guide to swap. 5.49% down to 2.1% 5yr fixed. £230/mth saving. Thanks." That's nearly £14,000 saved over five years.
There's full help in Martin's Free Remortgage Booklet, here's a quick action plan...
a) Dig out your current mortgage details: 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.
b) Take 2 mins to benchmark the best deal: Our Mortgage Best-Buy Comparison includes all deals available to brokers, and direct-only deals. And we've designed a clever extra where it factors the fees into the overall cost to give a true comparison.
c) See your likely saving: Once you know prospective new deals, use our Ultimate Mortgage Calc which has lots of tools to show your saving.
d) Finding a cheap deal isn't enough - you need to get accepted: The days when lenders would fling out deals to all and sundry are long gone. Here's what matters...
- Is your credit score good? It's a huge part of whether you'll be accepted for credit. Our free Credit Club shows your credit report, your score, and has tips on how to boost it.
- Are repayments affordable? Lenders won't just check if you can afford repayments at current rates, they'll also stress-test if monthly rates are affordable at 6% or 7%.
- Do you meet the criteria? Details of each lender's eligibility criteria aren't always easily available to the public, but they are to mortgage brokers, so they can help match you to the top deal you're most likely to be accepted for. See Top mortgage brokers for info.
Rate rises are good news. Ditch anything sub-1% now
Savings rates have been creeping up in the last few months in anticipation of a base rate rise. The best-buy easy-access deal now is Birmingham Midshires' 1.3%, nine months ago it was just 1.01%. It's good news for savers, but fixed savings won't change, and those with variable rates may find it's weeks before rises happen - if at all (see our bank-by-bank list of savings changes).
You need a crystal ball to predict what'll happen to easy-access rates, so we asked Martin to get his ball out...
"If your money is in a savings account already paying a pitiful rate such as 0.1%, it's unlikely to rise. If it's in a middling account paying about 0.5% you may see an increase in the next few weeks, though not necessarily the full 0.25 percentage points. If you're earning less than 1%, it's a pants account anyway so you should switch.
"However, while today's best buy is 1.3%, I doubt we'll see that rise by 0.25 percentage points over the next few weeks, as it'd probably already factored a possible rate rise in. So I'd be looking more for a top rate of 1.4%-1.5% soon. In a nutshell, if you're in a pants account, sort it now - don't wait. If you're a savings tart, in a good account, who moves money all the time, hold off a week or two before doing anything. We'll bring you best buys in our regular Wednesday email."
Savings-boosting checklist - earn up to 5%
These top picks could change at any time - for updates see our Top Savings guide
- Up to 1.3% easy access: Here you can withdraw cash when you want. The current best is Lloyds-owned Birmingham Midshires. It offers 1.3% variable for deposits from £1. Next best is Bank of Cyprus UK, paying 1.28% variable (min £1). As is the nature of the best deals, the rates on both will likely plummet after 1yr so remember to switch again.
- Top fixes up to 2.2%: If you're prepared to lock cash away you can earn more. App-based Atom Bank pays 1.8% for 1yr, though if you want a big name, Yorkshire Bank pays 1.5%. For 2 yrs, Atom pays 2.05%. 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. Tesco Bank offers 3% variable on up to £3,000 until at least Apr 2019, 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 & Nationwide.
3. GOT EXISTING CREDIT OR STORE CARD DEBT?
The top debt-shifting 0% deals are weakening. If you pay interest, check NOW if you can slash it
After years of 'best ever' 0% deals, things are moving the other way and an interest rate rise compounds this. The Bank of England has warned about irresponsible lending and this rate rise is likely to add to that mood music.
To show the impact, six months ago you could shift at 0% for 43mths. Now it's a max 39mths, so if you're paying interest, sort it ASAP, as it's possible deals will continue to shrink. As Kelly told us: "Legend. Used your eligibility calc, got 35mths 0% and shifted £11,000 from 29.9%. Shocked by the savings."
Debt-shifting checklist - up to 39mths 0%
Top tip: Go for the lowest fee in the time you're sure you can repay
We urge anyone paying credit or store card interest to urgently check if they can shift the balance to a new 0% card, especially as APRs may now nudge up. For most with ongoing debt the challenge is being accepted, so use our Balance Transfer 0% Eligibility Calc which shows which 0% deal you're most likely to get. Here are our top picks:
- Longest 0%: Tesco Bank* up to 39mths, 2.69% fee (20.6% rep APR after).
- Longest 'non up to' 0%: Virgin Money* 38mths, 1.5% fee (20.9% rep APR after).
- Longest NO FEE 0%: Sainsbury's Bank* 28mths 0%. It charges a 1.5% fee, which is refunded within 60 days (18.9% rep APR after).
For full info and lots more options, see our Best Balance Transfers guide (APR Examples).
Always follow the balance transfer golden rules:
a) Clear the card or transfer again before the 0% ends or you pay the APR.
b) Never miss the min monthly repayment or you can lose the 0%.
c) Don't spend/withdraw cash. It usually isn't at the cheap rate.
d) You need to ask the new provider to do the transfer; you then owe it instead.
e) You must usually do the balance transfer within 60/90 days of opening.
4. PERSONAL LOANS
Rates likely to rise soon - but there is probably a SHORT window to get them at record rates
If you've a loan, it's almost certainly a fixed rate, so there's no impact. Though for those hoping to get one, rates are likely to rise from all-time lows, due to the base rate rise and pressure on lenders to reduce borrowing.
Yet 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 there may be a window of days, or if lucky, weeks, before we see moves. So if you NEED to borrow it's sensible to do it soon - but only if it's planned, budgeted and affordable, or the pain will likely outweigh the gain.
Cheap loans checklist - from a record low 2.7%
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.
For quick best buys, though, Sainsbury's Bank* is 2.7% rep APR for £7.5k-£15k loans (1-3 yrs, needs Nectar card), Clydesdale* / Yorkshire* Banks are 3.3% rep APR for £5k-£7,499. For under £5,000 you can pay from 5%, though also check credit card loans.
Always follow the loan golden rules (full help and more best buys in Cheap Loans):
a) Minimise the amount and repay as quickly as you can.
b) Pay on time or you may get a charge and a credit black-mark.
c) If you apply to pay off credit cards, a balance transfer may be cheaper.
PS: If you've got any questions let us know at firstname.lastname@example.org and we'll try to answer the key ones in next Wednesday's weekly email.