Martin Lewis gives important advice to anyone with a savings account or mortgage following rising interest rates

The Bank of England announced a pre-Christmas interest rate hike from 0.1% to 0.25%, after figures released earlier this week showed a larger-than-expected jump in inflation to 5 , 1% in November, which reinforced the argument in favor of an increase.

Authorities have been under pressure to curb the rise in the cost of living, although calls for an increase have been dampened by the arrival of the Omicron wave of Covid-19 and fears over its likely economic impact.

Responding to the Bank of England’s first base rate hike in three years, Martin Lewis said that while the 0.1% to 0.25% hike isn’t massive in itself, it’s a signal which might indicate more to come.

The founder of MoneySavingExpert.com said savers and borrowers shouldn’t worry, but check out what they can do to maximize their money in and out.

He said: “A UK base rate hike was widely reported last month, but did not happen. This month, with Omicron’s hike and a blow to the economy , much less expected, but the Bank surprised us.

“While the hike itself isn’t huge, the signal is. That the bank is overcoming its inertia speaks volumes. This is the first rate hike in three years – and I guess, unless that we do not resume lockdown and the economy crumbles again, this indicates that this is just the beginning, more to come.

The rise in interest rates is due to high inflation in the UK and prices are rising at their fastest pace in years, meaning the Bank of England is charged with preventing this from happening. produce.

By raising interest rates, the theory says that you encourage saving and discourage borrowing, take money out of the economy and slow things down.

However, there is a small problem with this theory, which, according to the consumer champion, is due to the costs of energy and fuel.

He explained: “The problem is that it is the price of fuel and energy that drives inflation. It is a global problem, unlikely to be solved by unilateral action from the UK. Plus, we already know that in April there will probably be 40% hike in the energy price cap regardless of what the Bank of England does. So we have to wait and see if its interest rate leverage is powerful enough to put things back in place.

Concretely, the finance guru said it is likely that mortgage holders would lose more than savers gain.

What this means for mortgage holders

Martin explained: ‘For holders of variable rate mortgages, the typical £ 8 per month increase for every £ 100,000 of mortgage loan will be far from welcome amid the other huge price hikes we are seeing in. energy and fuel bills.

“So it’s important, especially for those on Standard Variable Rates (SVRs), where lenders have the freedom to raise rates by more than 0.15% – to see this as an incentive to check if you can. save money by getting a better mortgage deal. . “

What this means for savers

Martin said: “For savers, we may see some easy access rates going up at the big banks, but they will always be low – often less than 0.1%. There is a chance that fixed rates will go up a bit. more on the back of the ad, so there’s no rush to do it – remember – but if it does, it’s unlikely to be a substantial increase in the short term.

“Instead, for most people, the impact of the rate hike is insignificant compared to simply switching to the best, easy-to-access accounts on the market at over 0.7%. In fact, it is. is a much cuter decision right now for most savers, if you don’t need money for the coming year, is to consider putting money into higher fixed savings, where you will almost get the double the rate of even the best easy-access accounts. “

MoneySavingExpert.com has created a comprehensive help guide for savers and borrowers which you can read here.

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