Interest rates, energy bills, Council Tax: why you need to act now to protect your finances

From increasing mortgage costs to soaring energy bills, it’s important to move now to keep your finances in the best possible shape.

It’s no secret that there is a cost of living crisis already underway in the UK, and thanks to new developments last week we know that it’s about to get even worse.

Indeed, millions of households will see their household bills rocket by £100s a year in the near future.

The good news is it's possible to offset these costs and more, but the important thing is to act now. 

Let's start by looking at what's behind the impending tsunami of bill hikes, before moving on to what you should do about it.

Base Rate rises

This week, the Bank of England announced its second increase to the Base Rate of interest in two months, moving it to from 0.25% to 0.5%.

Notably a handful of members of the bank’s Monetary Policy Committee ‒ which sets the rate ‒ wanted to see an even bigger increase, to 0.75%.

Indeed, it remains a distinct possibility that we could see even further hikes in 2022 if the analysts are to be believed.

This is in no small part down to concerns about inflation, which many of us can see reflected in the prices we are paying for everything we buy each month.

However, it will have an immediate knock-on effect on millions of homeowners.

If you're on a variable mortgage rate, be it your bank's standard variable rate (SVR) or a tracker rate mortgage, then the rate of interest charged on your loan ‒ and with it, the size of your monthly repayments ‒ will go up as a result.

And we're not talking small numbers either: as a result of the latest 0.25% Base Rate hike, a homeowner with a £150,000 interest-only tracker mortgage set over 25 years will see their monthly payments jump by around £31 a month or nearly £375 a year.

Base Rate rises are often accompanied by lenders repricing their fixed-rate deals too.

As a result, if you were thinking about remortgaging but haven’t got around to it yet, your range of options may now be more expensive than a couple of weeks ago.

Energy price cap

One of the bills that we are all set to see skyrocket in the months ahead are our energy bills.

It’s no secret that the energy market has been a bit bananas over the last year or so, with a succession of smaller suppliers going bust over 2021 due to the rising costs of securing energy on the wholesale markets.

Ofgem, the energy regulator, has been warning for some time that it would have to increase the level of the energy price cap ‒ which limits how much suppliers can charge us each year, but the scale of the increase is pretty extraordinary.

From April, the cap will jump to £2,017 for a typical household, which works out an increase of £693 per year. 

The Government have announced some support to lessen the blow, in the form of a £150 Council Tax discount in April, as well as a £200 rebate on energy bills in October.

However, for many people that won’t make a huge difference.

Council Tax rises

April is going to be a punishing month in other ways too, with Council Tax increases likely for millions of us as well.

A recent study by the Local Government Chronicle suggested that more than two thirds of councils are planning to hike bills by the maximum they are allowed to, without having to hold a referendum.

Councils can raise bills by an average of 2% a year without having to hold a referendum, while they can also add 1% if they have responsibility for social care.

As we’ve highlighted before, such a rise would mean households in as many as half the council districts in England would have to deal with annual Council Tax bills above £2,000.

National Insurance increase

It’s also worth remembering that the rate of National Insurance we pay will be going up by 1.25% in order to raise funds for the NHS and social care.

There had been talk that the increase might be shelved due to unease among Tory backbenchers, but the Prime Minister and Chancellor have confirmed it will still be happening.

What you can do to protect your finances

There’s a big old bunch of hikes to the various bills we pay on the way, so it makes sense to act now in order to support your finances. 

Here are some things you can do right now to limit the damage of the rises:

Get your mortgage in shape

With further Base Rate rises likely on the horizon – some analysts believe the Base Rate could rise as high as 1.5% in 2022 – it’s important to consider whether you’d be better off with the security offered by a fixed-rate mortgage.

The reality is that rates on these deals are incredibly cheap by historical standards, and you can secure those rates for a long time. Both Leeds Building Society and Halifax this week launched competitive 10-year fixed rate deals, for example.

If you are on your lender’s standard variable rate (SVR) ‒ the rate you move to after your initial fixed or variable deal comes to an end ‒ then remortgaging really should be a matter of urgency.

These rates are set by the lenders themselves and are ALWAYS far more expensive than regular mortgage deals.

What’s more, they can be increased at any time ‒ while lenders will no doubt be increasing them after the Base Rate rise, they could continue to hike them in the months ahead even if the Bank of England doesn’t touch Base Rate.

For a full explainer, check out our guide to the different types of mortgages.

Getting off the SVR and onto a new deal could save you hundreds of pounds a year so it’s well worth doing as soon as possible.

Keeping on top of your energy use

In normal times, if people faced the prospect of an energy bill rise I’d be encouraging them to shop around and move to a new deal from a rival supplier.

The trouble is that won’t make much difference at the moment, since you’ll pay largely the same with a new deal as through staying on your existing tariff.

As a result, if you want to reduce the size of your energy bill your focus needs to be on reducing your actual energy use.

We have rounded up a host of simple ways to do that, which will make a tangible impact on what you end up spending each month.

Reduce your Council Tax

Council Tax is not necessarily an easy expense to reduce, but it is possible.

It’s worth investigating whether you are in the correct Council Tax band, or whether you qualify for a discount.

Get what you’re entitled to

There are all sorts of discounts and benefits that people are eligible for, but don’t claim.

This is particularly true of older people, and now is absolutely the time to put that right and ensure that you are receiving all of the support that you can.

And we're talking about hundreds, sometimes even thousands, of pounds a year. Potentially more than enough to offset all of this year's bill hikes.

We’ve put together a comprehensive round up of the various schemes open to pensioners ‒ see which of these entitlements you might qualify for.

Look at your debts

Mortgages aren’t the only form of borrowing that we rely on ‒ plenty of us have outstanding sums on credit cards, personal loans, overdrafts and the like.

Now is an excellent time to take a fresh look at those debts, to see if there are ways that we can cut the cost of paying them off.

That may mean transferring credit card debt onto a 0% balance transfer card, switching to a bank account with an interest-free overdraft, or even consolidating various forms of credit into a single loan that’s easier to manage.

Make some extra money

If you know that your expenses are about to increase, as well as looking for ways to limit those rises, it also makes sense to investigate ways to improve your income.

That could mean asking your boss for a pay rise, taking on a side hustle, or simply changing the way that you bank.

It really is far easier than you might think to raise some extra cash.

At the time of publishing, first direct will pay you £150 cash for switching to its excellent free bank account.

The process is really straightforward and should take you less than an hour overall – and that one action alone will wipe out almost a quarter of the latest energy price hike.

Check out our extensive run-through of easy ways to make some extra cash.