INTEREST-ING
Bank of England interest rate decision confirmed and what it means for your money
Watch our video on how the BoE base rate affects you
THE Bank of England has opted to hold interest rates at their current level, to the disappointment of homeowners.
During today's meeting of the Monetary Policy Committee (MPC), the BoE's rate-setters kept the base rate at 4.75%.
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Six members of the MPC preferred to keep the base rate at 4.75%, while three voted for a 0.25 percentage point reduction.
Governor Andrew Bailey said the central bank needs to make sure inflation returns to its 2% target level on a "sustained basis".
"We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year," he said.
Most economists had predicted the central bank to keep interest rates the same.
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Lenders use the base rate to determine the interest rates offered to customers on savings and borrowing costs, including mortgages.
The Bank of England (BoE) cut rates from 5.25% to 5% in August, the first reduction since 2020 and a boon for squeezed borrowers.
It then held the base rate at 5% in September before cutting it to 4.75% in November.
Today's decision comes as inflation remains just above the BoE's 2% target.
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Inflation measures how prices for everyday goods like food and clothing have changed compared to last year.
Yesterday, the Office for National Statistics reported that it hit 2.6% in November.
The Sun's James Flanders explains how to find the best deal on your mortgage
The BoE raises or lowers its base rate, which determines the interest rates charged to banks, as a means of controlling inflation.
By increasing the base rate, borrowing becomes more expensive, which is intended to curb spending and drive down inflation.
Money markets are now betting interest rates will stay slightly higher for longer but reach 3.5% by the end of next year.
Interest rates rose from historic lows of 0.1% in December 2021, and peaked at 5.25% in July 2023, in an effort to reduce inflation to the Bank's 2% target following the coronavirus pandemic.
This led to a sharp increase in mortgage costs for millions of households, adding thousands of pounds to some bills, though savers saw returns on their savings go up.
But the upturn in the base rate has also seen rates on savings accounts pushed up.
The latest MPC meeting comes after Rachel Reeves announced nearly £70billion in additional spending during her Autumn Statement in October.
The Office for Budget Responsibility (OBR) indicated that this sharp increase in spending will contribute to higher inflation in the coming months, although it will also help drive stronger economic growth.
It forecasts that inflation will average 2.5% this year and 2.6% next year before decreasing, assuming the Bank of England takes action to help bring it to the target rate.
Rachel Reeves said today: "I know families are still struggling with high costs.
"We want to put more money in the pockets of working people, but that is only possible if inflation is stable and I fully back the Bank of England to achieve that."
The BoE will next meet in February when it will also give an update on its forecasts for the British economy.
In any case, here is what today's decision means for your money.
Mortgages
When rates are held, mortgage rates usually do not change very much, but we've been seeing fixed rates come down in recent weeks as lenders battle it out.
Today's announcement means that those on tracker or standard variable rate mortgages won't see any change to bills.
David Hollingworth, associate director at L&C Mortgages said: "Mortgage borrowers shouldn't expect to see much change because of today’s figures.
"Further base rate cuts are expected next year but the Bank of England has played a consistent line that those reductions are more likely to be slow and steady in pace.
"The figures today do nothing to suggest that line is about to change."
NatWest, HSBC and TSB cut their mortgage rates yesterday, with the cheapest fixed-rate deals now closing in on 4%.
Last week, Barclays cut its residential purchase and remortgage five-year fixed rates by up to 0.14%.
FINDING THE BEST MORTGAGE DEAL
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you're remortgaging and your loan-to-value ratio (LTV) has changed, you'll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home's value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you're nearing the end of a fixed deal soon it's worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a to see what's available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You'll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee - sometimes more than £1,000 - to the cost of the mortgage, but be aware that means you'll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
Credit card and loan rates
There is unlikely to be any change after today's announcement.
If the base rate is changed, the cost of borrowing through loans, credit cards and overdrafts can go up when they rise and sometimes borrowing will get cheaper if they fall.
However, certain loans, such as personal loans or car financing, usually stay the same, as you have already agreed on a rate.
With rates held, any rates you are paying on credit cards and loans are unlikely to change for now though.
Holly Tomlinson, financial planner at Quilter said: ";Higher interest rates mean borrowing remains expensive, whether you’re using a credit card, personal loan, or car finance.
"With today's decision to hold rates, credit costs won’t rise further for now, but they are unlikely to fall significantly in the short term.
"For those planning to borrow, it’s important to shop around and avoid taking on unnecessary debt, as rates will remain higher than they were just a couple of years ago."
FIND THE BEST CREDIT CARD DEALS
YOU should always use an eligibility calculator before applying. That's because every credit card application leaves a mark on your credit file and can affect your credit score.
To assess all the available cards, visit price comparison websites like MoneySavingExpert's Cheap Credit Club or Compare the Market.
Once you run your details through an eligibility calculator and you've been shown that you're likely to be accepted, make a formal application.
To do this, you will need to provide your name, address and email address as well as details of your income so a provider can assess your eligibility.
You will also need to provide details of how much money you want to transfer to the new card, but you can often do this after you have been accepted.
If your application is approved, you will need to transfer the balance within a set period, usually around 60 or 90 days.
Your old balance will then be cleared and you can start making interest-free repayments on your new card.
Savings rates
Savers are the main group to have benefited after the consecutive rate rises.
This is because banks tend to battle it out to offer market-leading rates.
That said, banks are usually much slower to pass on higher rates to savers.
Savers are being warned that top rates are at risk of disappearing as further rate cuts loom.
The Sun previously revealed that interest rates are being slashed on over 200 accounts ahead of the New Year.
Average savings rates have been steadily declining over the past 12 months.
Currently, average easy-access rates stand at 2.96%, down from 3.19% in 2023, according to MoneyFactsCompare.co.uk.
Similarly, the average one-year fixed bond rate has decreased from 4.31% to 4.1% since December 2023.
Adam Thrower, head of savings at Shawbrook, said: "After the recent base rate cut, savers will be relieved to see a brief pause in the rate-slashing agenda.
"But time's ticking to lock in high-paying accounts before the next cut, which could see savings rates tumble.
"There's a lot going on this month but if you have a few spare minutes, it's worth adding ‘open a new savings account’ to your to-do list and look at the possible tax implications of where your money is sitting.
"A whopping 4.2 million UK savings accounts could be tax liable now so reviewing your savings options—including ISAs—could be a great present to give yourself this year."
FIND THE BEST SAVINGS RATES
WITH your current savings rates in mind, don't waste time looking at individual banking sites to compare rates - it'll take you an eternity.
Research price comparison websites such as Compare the Market, Go Compare and MoneySupermarket.
These will help you save you time and show you the best rates available.
They also let you tailor your searches to an account type that suits you.
As a benchmark, you'll want to consider any account that currently pays more interest than the current level of inflation - 2%.
It's always wise to have some money stashed inside an easy-access savings account to ensure you have quick access to cash to deal with any emergencies like a boiler repair, for example.
If you're saving for a long-term goal, then consider locking some of your savings inside a fixed bond, as these usually come with the highest savings rates.
Pensions
The BoE's base rate also impacts pensioners looking to buy an annuity.
A pension annuity converts your pension pot into a guaranteed regular income for the rest of your life.
However, because annuity rates are linked to the cost of government borrowing, any rise or fall in the BoE's base rate can impact the rate you receive.
The income you receive can be locked in on the day you purchase your annuity, so current annuity rates can make a big difference to your long-term financial security.
However, with interest rates unchanged, pensioners will still be able to secure favourable rates.
Holly Tomlinson at Quilter added: "High interest rates have supported better annuity payouts, but retirees should be aware that next year’s anticipated rate cuts could make annuities less attractive.
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"If an annuity is part of your retirement plan, acting soon might secure a higher income.
"Those using drawdown strategies should take this period of stability to review their portfolios and ensure they balance immediate income needs with long-term growth potential."
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