The Bank of England has held interest rates again at 5.25% for the second time in a row after nearly two years of hikes.
The news will be a relief for millions across the country who have faced increased costs after fourteen consecutive base rate rises. The base rate sat at 0.1% in December 2021 and reached a 15-year high earlier this year.
The Monetary Policy Committee (MPC) - who decides the base rate - began hiking interest rates in a bid to lower rising inflation. This hit a 41-year high of 11.1% in October last year but has been slowly going down.
The latest inflation figure sits at 6.7% - although this is still three times the Bank of England target of 2%. It is important to remember that today's interest rate remains at its highest level since the 2008 financial crash.
What it means for your mortgage
Tracker mortgages move in line with the base rate, so these become more expensive when the base rate goes up. As interest rates have been paused, tracker households can breathe a sigh of relief as their deal won't go up today.
Standard variable rate (SVR) mortgages normally go up too - but it is down to your lender to pass on any rises. Over the recent months, many lenders have decided to not pass on the increases to their SVR mortgage customers. You are usually placed on an SVR deal after your fix or tracker rate ends and around 1.4million Brits are currently on a tracker or SVR deal.
If you are on a fixed mortgage rate, you pay the same rate each month for the term of your contract. This means you are protected from any rises during your deal - so today's announcement will have no immediate impact on your monthly payments.
At the moment, eight out of ten mortgage holders are on a fixed-rate deal. However, if your deal is coming to an end soon, then you will still likely end up paying a lot more per month when you come to remortgage - especially if you fixed when interest rates were at record lows.
According to data by MoneyFactsCompare.co.uk, the average two year fixed mortgage rate currently sits at 6.3% and the average five year fixed rate is 5.87%. Today’s average two year tracker rate is 6.16% and the average standard variable rate sits at 8.19%.
What it means for your debts
Credit card interest rates are normally variable anyway, so can change from time to time. Some are linked to the base rate, which means they can change when the base rate moves.
Your lender must tell you if there is a change coming to your credit card rate. You also have up to 60 days from being informed to cancel your agreement.
Over the last year, interest rates on credit cards have been getting more expensive due to the cost of borrowing going up. This means if you need to take out a new credit card, the deals on offer today will be worse compared to a year ago.
Interest rates on most personal loans and car financing are normally fixed, so they should not be affected by rate changes. But again, if you want to take out a new loan most lenders are now advertising higher rates than before.
Higher interest rates may also impact the total amount you can borrow if your overall affordability has been affected.
What it means for your savings
Savers are usually considered the winners when rates go up. Banks were initially slow at passing on the higher rates, however, they have started to step up after being called out by both the Financial Conduct Authority (FCA) and MPs. Savings rates are now at their highest levels since 2008
According to MoneyFactsCompare, in October the average rate on a one-year fixed account sat at 5.35% and for one-year easy access savings accounts it was 3.19%. One-year fixed cash ISAs have an average interest rate of 5.21% and the average easy access ISA has a rate of 3.29%.
These figures are just the average and it is possible to beat these rates by shopping around. Currently, the best easy-access rate right now is 5.25% by Paragon Bank and the best fixed-term account is 5.97% and offered by JN Bank, fixed for three years.
Regular saving accounts - in which you commit to paying a certain amount each month - usually have the highest rates. At the moment First Direct has a regular saver with a rate of 7% while the Nationwide regular saver offers 8%.
So what will happen next?
Bank of England Governor Andrew Bailey today said interest rates would remain restrictive for “quite some time yet” adding that the central bank would keep rates high, for as long as needed, to get the level of inflation down.
The Bank of England expects inflation to drop below 5% in October although we won't know until the Office of National Statistics (ONS) announcement on November 15. The Monetary Policy Committee (MPC) has warned it could raise interest rates again if inflation goes up.
Some analysts are predicting the cost of mortgage deals to drop even further.
Over the last few months, lenders have been dropping their rates as they compete for custom and with the freezes - alongside a period of very low activity in the sector - lenders may drop rates even further. Rachel Springall, finance expert at Moneyfactscompare, says mortgage brokers are expecting a fall in swap rate, which could potentially prompt a fall in fixed rates too. She added: “Favourable market swap rates have already been cited by some big lenders as an opportunity to cut fixed rates in their range.”
However, even if mortgage rates drop a little more, they are still significantly higher than most homeowners' previous deals.
In regard to savings, again the rate pause could mean that banks and building societies may freeze, reduce, or even pull their best savings rates. Last month, MoneySavingExpert.com founder Martin Lewis shared this warning.
This is because fixed-rate savings accounts are based on longer-term predictions for the base interest rate. If the base rate looks set to remain at 5.25% or even drop going forward savers may want to try and lock in the best saving rate they can get sooner rather than later.