What today's Base Rate hike means for your savings, mortgage, pension and more

Despite concerns about the economy, the Bank of England has hiked the Base Rate – so what does it mean for your savings, mortgage, pension and more?

After a great deal of ‘will they, won’t they’, the Bank of England’s Monetary Policy Committee (MPC) has finally bitten the bullet and hiked the Base Rate of interest from 0.5% to 0.75%.

It marks the first time in almost a decade that the rate has crept above the 0.5% figure that had largely become the new norm since the financial crisis hit.

So what might the change in Bank of England Base Rate mean for your own finances? We’ve been taking a look.

Baby steps

While it will probably grab most of the headlines today, the most important thing to remember is that this is a fairly small change in rate.

For most households this change will not have a terribly dramatic impact on their finances.

But that doesn’t mean that it won’t have any impact – and of course it’s also only the second increase we've seen in some time (following the hike last November, from 0.25% to 0.5%).

It is possible that the Bank of England’s Base Rate will continue to inch up, although that very much depends on various economic factors (as well as how Brexit talks are progressing).

Some people will be cheering that outcome, particularly savers.

Light at the end of the tunnel for savers?

With the rate so low for so long, savings rates have been correspondingly miniscule too and so savers are likely to be delighted at today’s news.

But any celebrations might be premature. When the Base Rate rose by 0.25% back to 0.5% at the end of last year, banks and building societies were relatively slow to pass on the rise to their savers.

In fact, only half of savings accounts have actually had their rates increased (remember, this is nine months down the road), and even then by just 0.2%, rather than the full 0.25%.

Ultimately, there are no rules that say they have to – and they’re only likely to do so if they want to attract more deposits. So make sure you take matters into your own hands and switch to a top-paying savings account.

The good news is you can earn up to 5% on your cash, provided you're willing to jump through a few hoops.

Willing to take on some risk for a higher rate? You could visit our investment centre or have a look at the peer-to-peer tab in our savings tables. 

Regarding the rate hike, another bonus for savers is that it'll make it easier to beat inflation. Not just because savings rates (might) rise, but because an increase in Base Rate will likely drag down CPI, which currently stands at 2.4%.

That means more savers will at least avoid seeing their money lose value in real terms.

Rising costs for mortgages

If you’re on a fixed rate mortgage then nothing will change following today’s hike. The only thing that’s likely to change is that when the fixed rate ends, the variable rate you move onto is likely to be higher – and remortgaging could be pricier.

But around half the nation’s mortgage holders are not on fixed rates, they are on their lender’s standard variable rate or a tracker rate, meaning their monthly payments are likely to increase as a result of the hike.

Financial data website Moneyfacts has suggested that a hike of 0.25% to the rate would add around £35 a month to repayments, based on the average Standard Variable Rate (SVR).

Some households will be able to simply shrug that off but for those on a budget this could bring some pain. If you are on an SVR, it's vital you shop around for a cheaper mortgage deal.

Chance are you'll be able to more than counter the effects of the Base Rate hike.

Better value when buying annuities

If you’re part of the relatively small group of people who are currently in the market for an annuity then today’s news is most likely a good thing.

Annuity rates are priced depending on the interest rates of government bonds known as gilts.

The yields on those gilts have been rising because it has been expected that Base Rate would climb. In short, the amount of annual income you can buy for your money has been climbing as a result.

Of course, that does present would-be annuity buyers with another thorny issue. Would they be better off waiting a little longer in case they get even more value for money?

Speaking after the last Base Rate hike back in November, Nathan Long, senior pension analyst at Hargreaves Lansdown, said retirees need to be proactive.

“Shopping around for the best annuity remains imperative, particularly because two-thirds of retirees now qualify for higher levels of income because of their health or lifestyle.’

“Rising Gilt yields also impact on final salary pension schemes. There is a direct link between Gilt and bond yields and the liabilities on final salary schemes.

A rise in interest rates would likely feed through to lower scheme deficits, however it could also mean the end of the historically high scheme transfer values we have seen in recent months.

“Whilst improving Gilt yields are good for those wanting to buy an annuity, it is not so good for those whose pension is in funds that invest in Gilts, as their value will fall.

"Pension scheme members are often invested in these funds by default as they close in on their scheme retirement date.

“Avoid sleepwalking into retirement by taking time to understand where all of your pensions are invested.”

What do you think about the Base Rate hike? Is it good news or bad? Have your say using the comments below.