The Bank of England sparked sighs of relief today by cutting interest rates for the first time since August 2005. Since then rates have steadily increased from 4.5% to a peak of 5.75%.
But today the base rate was slashed to 5.5%, which should come as some relief to hard-pressed borrowers.
MoneyExpert.com research shows more than 3.4 million of us are very concerned about our ability to handle the debts we’ve already got so it’s good news that borrowing isn’t due to get even more expensive any time soon.
How does this affect you? If you’re a homeowner with a mortgage, you’ll have felt the pinch over the past year as rates have gone up and up. If you’re a saver you’ll have profited from high savings interest deals and hoping the fun will never stop.
The question is – what should you be doing about it?
I’m a homeowner
A base rate of 5.5 per cent puts pressure on every homeowner’s finances – but it is more welcome than the previous rate of 5.75 per cent. Thousands of homeowners on fixed rate deals will have been fearful of what will happen when their current arrangement expires – so there’s some hope that rates will be more manageable from now on.
People on a variable rate mortgage will have seen their repayments rise by around £130 a month since August 2006. The rate decrease will mean they will typically save around £275 a year – which is a start.
But those coming off fixed rates soon will still be in for a shock – 2.5 or 3 per cent deals have been replaced by 5 or even 6 per cent average rates. And one base rate decrease won’t change that overnight.
If you’re thinking of remortgaging or if you’re shopping around for a cheap deal for when your mortgage expires, click here to compare the best rates and to find the mortgage that best suits your needs. And remember even if you’re still on a fixed rate deal you can get a mortgage now and leave it open for three to six months.
I’m a saver
If you’re a saver, you’ll be hoping that this interest rate cut is a one-off blip. But you can’t really complain because you’ve profited from rate hike after rate hike over the past 18 months.
Savings accounts are still very competitive and while the rate change might affect a typical deal, many customers will still benefit from rates of anything from 6 per cent to 12 per cent, depending on what kind of deal you want.
So the first thing to do is check whether your bank is likely to change its savings rates and to see if you qualify for a top rate. If you want to search around and compare the market, click here and we’ll help you choose the right savings account for you.