For the second month in a row the Bank of England has decided against raising interest rates again which should come as some relief to hard-pressed borrowers.
MoneyExpert.com research shows more than 2.5 million of us are very concerned about our ability to handle the debts we’ve already got so it’s good news that the cost of borrowing isn’t going to be squeezed yet again.
But today’s decision is no excuse to bury your head in the sand. The Bank has done nothing but that doesn’t mean you should do the same.
There’s still a risk the Bank could put rates up again by the end of the year and in any case with the rates at their highest level since February 2001 the chances are that more expensive borrowing is here to stay. Rates aren’t coming down anytime soon so you should be adapting to the new world.
How does this affect you? If you’re a homeowner with a mortgage, you’ll already have felt the pinch as rates continue to rise. If you’re a saver you’ll be watching with glee. The question is – what should you be doing about it?
I’m a homeowner
A base rate of 5.75 per cent puts pressure on every homeowner’s finances. Even those on fixed rate deals will be fearful of what will happen when their current arrangement expires.
It’s not the effect of one increase, however, but of five increases the past year that is taking its toll. People on a variable rate mortgage will have seen their repayments rise by around £130 a month since August 2006, and those coming off fixed rates soon will be in for a shock – 2.5 or 3 per cent deals have been replaced by 5 or even 6 per cent average rates.
The monthly cost of a £150,000 repayment mortgage at 3.5 per cent would have been only £758 per month. Homeowners coming off similar deals onto rates of around 6 per cent will see their monthly costs rise to around £977 per month – they’ll have to find over £200 a month or £2,400 a year from somewhere.
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 praying for yet further base rate increases in the coming months, and you should be already jumping for joy with current levels. Savings accounts are already on the way up, with many customers benefiting from rates of anything from 6 per cent to 12 per cent, depending on what kind of deal you want.
The good news is, the Bank of England is trying to encourage saving and to curb spending, so until we all calm down savings accounts are likely to continue to get more competitive.
The best rates are often only available to current customers as banks try to reward loyalty and prevent customers from switching. Abbey for example offer a tasty 10 per cent to existing customers who want to save regularly for a year – and Alliance & Leicester, Barclays and Halifax all have similar deals available to regular savers who are existing customers.
So the first thing to do is check with your bank 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.
Click through to MoneyExpert for money saving hints and tips