Cost of living latest: Concerns for mortgage holders as interest rates expected to rise – but it could be good news for savers

Key points

Bank of England to increase interest rate for 14th time in a row – here’s the impact it could have 
Rising rates ‘probably the correct decision’Housing insecurity becoming mainstream | Paul KelsoGovernment ‘confident’ it can halve inflationUse our spending calculator to see which prices have gone up or downRead more: Why renters are more vulnerable to interest rate rises than mortgage holdersLive reporting by Jess Sharp

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To use this form you need to have javascript enabled. 14:31:09 Have you been badly affected by rising interest rates?

Have you been badly impacted by the 13 straight hikes in interest rates? Are you struggling to pay your mortgage or rent?

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10:00:50 Fixed rate mortgages could fall even if the Bank of England increases its base rate – here’s what brokers think

In encouraging news for borrowers, brokers have predicted that even if the Bank of England increases interest rates by 0.25% as expected, fixed rate mortgages should not necessarily rise with it. 

“There will be no movement in fixed rate mortgage pricing because this has already been baked in,” says Lewis Shaw, owner of Mansfield-based Shaw Financial Services.

‘No impact’ on deals

His views have been mirrored by Craig Fish, a managing director of London-based Lodestone, who said a 0.25% will have “no impact” on the deals available. 

“What is going to impact them, though, is the release of the inflation data on 16 August and what that does to SWAP rates, which influence mortgage pricing,” he added. 

“If, as expected, inflation falls then I suspect we may see more lenders continue to lower rates as we have seen over the past week.” 

0.25% rise might be positive news 

One expert went even further and suggested a 0.25% rise could be good news for fixed rate mortgages. 

“A base rate hike is very much priced into the majority of lenders’ fixed rates,” Rob Gill, managing director at mortgage broker Altura Mortgage Finance, said. 

“Up until last month’s inflation figure delivered a lower-than-expected number, a hike of 0.5% was widely expected in August.

“However, a hike of ‘only’ 0.25% could ease pressure on fixed rates and even encourage lenders to deliver cuts.” 

But a 0.5% increase could ‘create waves’

Some experts have predicted the Bank will rise rates by 0.5% and, if that does happen, brokers have warned all bets are off. 

“A 0.25% hike by the Bank of England may merely ripple the mortgage pond, but a 0.5% increase could create waves, stirring up the lending waters,” said Peter Stadmford from Moor Mortgages. 

09:42:50 Average mortgage and savings rates ahead of Bank’s announcement

If today’s upcoming interest rates announcement isn’t enough bad news for mortgage holders, rates on five-year fixed deals have risen again. 

Before the Bank of England reveals what its new interest rate will be, the average five-year fixed residential mortgage rate is sitting at 6.37% – up from 6.36% yesterday, according to Moneyfacts. 

The average two-year fixed residential mortgage rate is now 6.85% – the same as yesterday. 

There is a very small number increase in the products available, with 5,028 residential mortgage deals available – just six more than yesterday.

And if you are interested in a tracker, it puts the average two-year rate at 6.00%.

What about savings? 

For savers who can afford to put money away for at least a year, the average rate is 5.21%, Moneyfacts said. 

The savings rate has also risen for easy access accounts, from 2.80% yesterday to 2.81% today.

For cash ISAs, it’s 5.01% for one-year fixed accounts, which is the same as yesterday – while the easy access ISA rate has increased from 2.87% to 2.88%. 

09:08:22 Government ‘confident’ it can deliver on promise to halve inflation – deputy PM

Deputy prime minister Oliver Dowden has told Sky News he’s “confident” the UK can deliver on its promise to halve inflation – as we wait to hear whether the base rate of interest will go up for a 14th time in a row.

The government has set an inflation target of “2% – but it currently sits nearly four times that at 7.9%. 

Most economists expect the Bank of England to raise it by a quarter of a percentage point – to 5.25%. 

While better news for savers, it will mean larger mortgage payments for many.

For all the latest political news, head over to our other blog… 

08:22:12 Morrisons ends Asda’s reign as cheapest supermarket for a trolley shop

Morrisons has ended Asda’s run as the cheapest traditional supermarket for a trolley shop after more than three years in the top spot. 

Which? found a shop of 138 items, including branded groceries, costs £341.92 on average at Morrisons – 22p less than Asda. 

Waitrose was found to be the most expensive at £376.66.

Aldi or Lidl have not been included in the comparison because they don’t always stock big-brand products. 

Cheapest supermarkets for a trolley shop

Morrisons – £341.92Asda – £342.14Tesco – £360.97Ocado – £367.96Sainsbury’s – £370.54Waitrose – £376.66

But, in terms of a basket shop – which is made up of 38 items – Aldi was found to be the cheapest at £71.22. 

Lidl came in second place, according the Which? analysis, at £72.60. 

Surprisingly, Morrisons was one of the more expensive options for a basket shop at £82 – with only Ocado and Waitrose coming in more expensive. 

Cheapest supermarkets for a basket shop

Aldi – £71.22Lidl – £72.60Asda – £78.65Tesco – £79.59Sainsbury’s – £81.06Morrisons – £82Ocado – £86.26Waitrose – £87.24

08:00:02 Next expecting to make £10m more pre-tax profit by end of financial year

Away from today’s interest rates decision, Next has released an interesting trading update. 

The clothing, footwear and home products store is considered THE retail bellwether of the high street. 

It has hiked its profit guidance for the year as it was buoyed over the past three months by improved full-price trading and a strong end-of-season sale.

The retailer reported that full-price sales increased by 6.9% over the 13 weeks to July 29, driven by 10% growth in its online business.

Nevertheless, this included a slowdown over the last six weeks of the period after it had been boosted by warm weather in May and June.

It also increased its pre-tax profit guidance for the current financial year by £10m to £845m.

Equity analyst John Choong said the “unscheduled update” shows Next continues to impress with a “fashionable set of numbers”. 

“Considering the improving situation on real wages, discretionary spending should continue to remain robust going into the winter,” he said, 

“That said, this will be heavily dependent on the next few CPI inflation prints. 

“Cooler-than-expected data could see the Bank of England lift its foot off the rate-hiking pedal and ease pressures on household income.” 

07:47:59 Rising rates is ‘probably the correct decision’ – and a choice is likely to have already been made

Ahead of the Bank of England’s announcement, Sky News has been speaking to a former member of the Monetary Policy Committee – the group behind the interest rates decision. 

Martin Weale says the expected rise is “probably the correct decision”, and the committee is likely “concerned” by the fact wage increases are staying high and not showing any signs of coming down. 

“If you have wages go up by 7.7% a year, then it’s rather difficult to see how you can have price inflation of only 2% a year,” he says.

At the same, the UK has seen house prices starting to cool, which could suggest previous interest rate rises are having an impact. 

Mr Wheel says the question is if the increases are having a “big enough impact” on how tight the labour market is at the moment. 

“Unemployment is not quite at a record low, but it’s a historically low figure and that’s one of the factors pushing up on wage growth,” he explains. 

While the Bank of England’s announcement isn’t due until midday, the formal decision will be made this morning, Mr Weale says. 

“It’s not a done deal, but the morning meeting I don’t think will lead to any changes compared to what people thought yesterday,” he adds. 

07:30:01 Interest rate: What a rise would mean for mortgages

We’ll be finding out shortly whether the Bank of England will raise the base interest rate as expected – and by how much.

A rise in interest rates will add to the mortgage pain already being felt by first-time buyers and millions looking to remortgage in the coming months.

Meanwhile, homeowners on standard variable or tracker mortgages will immediately feel the effect of higher interest.

A 0.25 percentage point increase – which is widely expected – would increase the average monthly payment for those on tracker mortgages by £23.71, while standard variable payments will rise by £15.14, according to UK Finance.

If the Bank imposes a 0.5 point increase, payments would increase by £47.43 and £30.28 respectively.

The trade association said around 800,000 fixed-rate deals are coming to an end in the second half of this year, while 1.6 million will expire in 2024.

With mortgage rates showing no sign of easing, it’s set to be a difficult period for homeowners facing significant spikes in their monthly payments. 

But UK Finance said arrears and possessions are at low levels and the number of households behind on their payments this year is expected to stay at below 1% of outstanding mortgages.

07:12:12 Bank’s decision will be a judgement call – and we’re all nervous about wage growth

We’ll find out at lunchtime today exactly what the Bank of England decides to do with interest rates – and most economists are expecting them to rise. 

Our business correspondent Gurpreet Narwan says the question is how aggressively the Bank chooses to act. 

“In the financial markets, investors, they’re constantly placing bets about where they think the Bank rate will go,” she adds. 

“And they believe that the Bank of England is due to raise interest rates by a quarter of a percentage point to 5.25%. 

“As you can see below, it would mark the 14th consecutive rate rise since December 2021 when the Bank first started raising rates to get a grip of inflation.

“But the Bank could choose to act more aggressively than that, and it’s a judgement call because although inflation has been coming down, the inflation rate came in at 7.9% last month. 

“It’s still almost four times the Bank of England’s 2% target, and we are all nervous about wage growth in the economy. 

“Wages are rising, starting robustly. It’s something central bankers have a keen eye on. So we can’t rule out a larger increase to half a percentage point. 

“And if that happens, that will have a knock-on effect on the mortgage market. Anyone on a tracker fixed rate mortgage will feel the pain almost immediately, but those on fixed-rate mortgages who are coming off their fixes will also see the rates that they’re paying increase.” 

06:52:58 Economists suggesting Bank of England may ‘stick to current figure’ due to last month’s inflation fall

As we’ve been reporting, interest rates are expected to rise by 0.25 percentage points to 5.25% later today. 

If experts are correct in their predictions, it would mean the Bank of England’s rate will have reached the highest figure since March 2008 – the year of the financial crisis. 

Some economists believe there is a chance it could actually go up by a full half a percentage point to 5.5%. 

“If you remember the last time around, there was a shock increase because the Bank of England was so concerned about the inflation,” our politics and business reporter Amanda Akass said. 

“It defied expectations really and did put rates up by 0.5%, and that could happen again. 

“Others are suggesting it could take the view this time around, because the most recent inflation figures did show a fall, to stick on the current figure after all.” 

06:32:08 Interest rates explained

Stories about interest rates can be hard to navigate – so we’ve written a guide to the basics.

What is the Bank rate?

This is what we are focusing on today, with the Bank of England’s Monetary Policy Committee widely expected to raise its rate at 12pm. These decisions are made every six weeks.

The Bank rate influences many other interest rates in the economy including the lending and savings rates offered by high street banks and building societies.

What is the current rate?

From all-time lows of 0.1% during the pandemic, multiple consecutive rises have seen the Bank rate move to 5%. Another 0.25 percentage points rise is widely anticipated – but not certain – today.

Why are mortgage deals much higher than this?

Average two and five-year fixed deals being offered by banks and building societies are now between 6-7% because lenders are loaning money over the long term and protecting themselves against fluctuations in the economy.

Why is the Bank rate being consistently raised?

This is all about inflation – the rate at which prices are rising.

This remains very high at 7.9% following the latest figures, in some part because of global factors such as the Ukraine war, which has resulted in Russia squeezing its gas supply, leading to higher energy prices. The conflict has also seen tonnes and tonnes of Ukrainian grain stuck in ports, contributing to increased food costs. Brexit has also contributed, some argue, as it has led to worker shortages – bumping up wages.

For obvious reasons, governments want to keep inflation low – the target is 2%, and Rishi Sunak has pledged to get closer to that, 5%, this year.

Hiking interest rates is the main way governments, or central banks, can lower inflation, as it means people have less disposable income, and so are buying less – which in turn means price setters are less likely to raise prices.

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