The Bank of England has raised interest rates to their highest level since the 2008 financial crash in an attempt to deal with inflation, but is adding significant costs to borrowers.

Consumer finance experts have told Sky News that there are big savings to be made by switching to a fixed-rate mortgage deal and looking for higher savings rates after the Bank’s rate, which is used to determine repayments on standard variable rate of return (SVR) mortgages. rose to 2.25% politicians in the city.

It is the second time since last month that a significant increase of half a percentage point has been introduced since December, following six previous but smaller hikes.

It follows in hot pursuit sharp jumps in rates by the US central bank, the Federal Reserve System, the Fed, when central banks take an aggressive stance against inflation.

Last cost of living

Why does the bank raise interest rates?

All this is part of efforts to control inflation as part of the Bank’s responsibilities to achieve the inflation target of 2%.

He is concerned about domestic pressures, particularly a tight labor market, which is pushing up wages.

But it also puts the blame for the rate hike squarely on Vladimir Putin.

The core consumer price index (CPI), which measures inflation, is now at 9.9%. The Bank now predicts that it will peak at 11% next month, as energy prices continue to rise across Europe due to Russian restrictions on gas exports to the continent.

The rate hike is designed to stem demand from the economy — helping to cool the red-hot pace of price and wage growth faster than it would otherwise.

I thought the bank couldn’t control energy costs?

It can’t.

The Bank’s big problem is that the energy crisis is a supply problem that it can’t do anything about.

As such, his focus is on accelerating the transition to easing inflation, which has included requests for a wage cap, for example.

The bank fears that inflation-adjusting wages, which many unions are currently pushing for, will make inflation even more stubborn to reduce.

So who is worse off from rising rates?

Any borrower.

A simple fact of life is that when the bank rate goes up, so do the interest rates paid by businesses and individuals on loans, unless they are for fixed terms.

When it comes to housing, according to UK Finance, the banking and finance industry’s representative body, there are still almost two million households on tracker and SVR deals, which together make up around 20% of the mortgage market.

The organization said it expects repayments to rise by £49 a month on tracker mortgages and £30.81 a month on SVR mortgages.

First-time buyers who took out a two-year fixed-payment mortgage and took out a loan for 90% of their home’s value now face paying £280 more a month than they did when rates started to fall, according to figures from estate agent Hampton . creep last December.

For fixed-term mortgage holders in London who have a loan for 75% of their home’s value, the increase is £288.

For those in the rest of the UK, the extra payment for those with the same mortgage conditions is £534.

Thursday’s increase increases the likelihood of further increases in mortgage rates over the coming months.

A message from Knight Frank estate agents – move now to save.

Read more:
The interest rate rose by half a point to 2.25%, the highest level since 2008
The real living wage was raised earlier to help workers overcome the cost-of-living crisis

“Borrowers who act quickly can save a lot of money. Some lenders are now allowing borrowers to take deals up to nine months in advance,” said Simon Gammon, managing partner of Knight Frank Finance.

“Five-year fixed rates were at 1% back in December. Now you’d be lucky to find any five-year money below 3.5%. If the pricing in the financial markets turns out to be correct and we see the base rate reach 4% around the middle of next year, we expect the top five-year products to be around 5.35%, which will be a shock to borrowers taking out two-year deals.”

What about fixed rate deals?

The price is – inevitably – also on the march because the bank rate is rising.

However, the bottom line here is that current fixed rate deal holders will not feel the pain until their deal expires.

What about business and personal loans?

Obviously, banks tend to require a better rate of return, but a lot depends on the client’s financial situation, as the level of risk will vary.

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The Prime Minister promises business

If borrowers are paying more, why aren’t savings rates keeping up?

The old saying goes that lenders are quick to punish but slow to pass on any benefits.

Given the current inflation rate of 9.9%, the ability to save remains very weak.

What can I do to protect myself from rising rates?

The advice is to look for financial products at consumer groups, charities and switching services that offer help in finding the most suitable deals.

When it comes to mortgages, affordability is crucial.

How do consumers live in other countries?

The problems of inflation and high energy costs are of course not unique to the UK.

In fact, when it comes to paying off debt, British consumers are doing better than some.

In America, nearly half (44%) of payment systems company Marqeta surveyed said they had struggled with credit card debt in the past 12 months. However, only 29% of UK residents struggled, less than 31% of Australians.

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