The Bank of England raised the interest rate to 0.75% yesterday, the highest level since March 2009.
It’s the news homeowners have been dreading as 3.5million on variable and tracker rate mortgage deals will see repayments rise, adding hundreds of pounds to the cost of loans.
Meanwhile, hard-pressed savers will welcome the news, as they could see the interest on balances rising.
Daily Mirror personal finance editor Tricia Phillips explains what it will mean for you:
Why was the rate put up yesterday?
The base rate was expected to rise in May but, the Bank of England Monetary Policy Committee, which sets the rate, decided to hold fire as the economy went through a blip at the start of the year.
Now the Bank is confident that dip was temporary. Inflation is above the 2% target at 2.4% and the Bank says it needs to be kept low and stable for a stable economy.
It also says the squeeze on pay is easing and average wages have started to rise faster than prices. Some experts say the Bank has raised the rate, while things look good, so they have some room to bring it down again should we hit rocky times ahead.
Interest rates 2018
Does this finally mean savers will get better rates?
Savers may think this is good news, and it could mean a glimmer of hope. But not all banks and building societies will put their rates up – or pass on the full 0.25%.
When the base rate rose from 0.25% to 0.5% in November 2017 many banks didn’t put their rates up at all, while others didn’t pass on the full rate rise.
If you have a £1,000 savings balance a full 0.25% increase to your interest will equal an extra 21p a month. On £5,000 it would be £1.04 a month.
Will my mortgage repayments go up?
If you are on a fixed rate mortgage deal, which is around two-thirds of borrowers, you won’t see an immediate hike. But if you are on a tracker mortgage your interest rate will rise 0.25%.
Those on Standard Variable deals will be at the mercy of their lender on whether they decide to increase the rate. The majority of lenders do tend to hike rates on SVRs when the base rate rises.
A 0.25% increase will cost an extra £13 a month on a £100,000 loan (£156 over a year), £26 per month on £200,000.
Will the interest I pay on my credit card go up?
While credit card interest doesn’t usually immediately go up on the back of a rate rise, some firms may use this as an excuse to up their rates.
So, yes some people could see a rate hike. But interest on a typical card is already high at an average 19% so those with balances are already paying a high price for this type of borrowing.
Does this mean I will get a better rate on my holiday spending money?
The rate rise has given the pound a boost but experts reckon this will be short-lived so it’s unlikely to make much difference when you exchange cash into foreign currencies.
Will the rate rise again?
The Bank says that if the economy continues to perform as expected, rates will continue to rise over the next few years.
But this is expected to be at a gradual pace. Finance experts are predicting one or two rises at 0.25% before 2020.
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