Key points
- Bank of England hikes interest rate to 5%
- UK economy going through shock therapy | Ed Conway analysis
- Voters may not forgive PM over mortgage rates | Rob Powell analysis
- Sunak says 'it's going to be ok'
- Having difficulty paying your mortgage? Has your rent gone up? Are you a landlord facing rising costs? Share your story
- Live updates by Megan Baynes, cost of living reporter
Your stories: 'We've pleaded with our mortgage company after £700 a month was added to our bill'
A couple from Chorleywood said they have been left "reeling" after almost £700 was added to their mortgage - and fear this could end up even higher after today's announcement from the Bank of England.
Cathy, 60, and Jim Patton, 61, say they have pleaded with their mortgage company to give them "breathing space" as they try to sell their home.
In June 2021 the couple took a two-year fixed-rate interest-only mortgage at 1.19%.
"We knew we’d need to repay the mortgage within the next eight years so my husband retired just over a year ago. We put our house on the market in January and we weren’t too worried as we’d assumed it would sell quickly.
"But it hasn’t and now we are in a panic with the new rate being raised from £218 to £894."
With the rest of their bills, plus food, they say they are facing a £150 a month shortfall.
"I’ve sent the mortgage company a letter outlining our situation but haven’t heard back," Cathy said.
Q&A has now ended
That's it for our Q&A sessions for today, when the Bank of England raised interest rates to a 15-year high of 5%.
We'll continue to bring you all the latest on the stories affecting the cost of living and tips to cope on this blog.
How will raising interest rates tame inflation?
Kim:
How is raising interest rates going to stem the profit-price spiral that is driving inflation?
Andrew Sentance, former member of the Bank of England's Monetary Policy Committee, said: "The inflation that we have is that the demand measured in money terms is increasing too rapidly.
"There is too much money chasing too few goods.
"What raising interest rates does is curtail the amount of money going into the system, helping to redress the balance.
"There are other impacts from raising interest rates, for example it can help push up the value of the pound, but the main way it helps is by limiting the amount of spending in the economy."
Asked if there were other ways of addressing the issue, Ed Conway said: "There is some research that suggests part of what is driving inflation is companies increasing their profit margins.
"Prices are going up of food and energy, and that turns into embedded inflation. If wages start chasing inflation, that can send inflation rising even higher.
"However, that doesn't seem to be the main factor in this case.
"Lately, the UK inflation rate does seem slightly out of whack with other countries, and we always seem to be on the upper end."
Will the banks pass this rate rise on to savers?
Ron:
Will the banks pass this rate rise on to savers? They have failed to do this so far.
Baroness Altmann said: "The big banks have been very slow to keep up with the interest rate rises.
"They have increase people's borrowing rates far more than they have helped savers.
"Some of the smaller banks have done better, but none of the savings rates will beat inflation.
"They are all significantly behind. However, I think the banks are increasing profit margins quite considerably at the moment.
"And passing on some of those gains is a conversation the chancellor may be having with the banks."
Have interest rates gone up for savings accounts?
Jay:
Have interest rates gone up for savings accounts?
Ian King said: "It depends on who you are saving with.
"The old rule of the longer you tie your money up the better the return will be.
"Natwest say that they have been passing on the interest rate rises to savers, as have Nationwide.
"If you are looking for yield think about stocks and shares, not just savings accounts."
Are high interest rates good for pensions?
Mark:
Are high interest rates good for pension pots?
Former pensions minister Baroness Altmann said: "High interest rates are better for annuities.
"Unfortunately many people reaching retirement are finding out many of their pensions have been invested in bonds which have been doing terribly.
"Higher interest rates are very bad news for pensions savers, it doesn't help people who have already started drawing out of their pension, but it might help people looking to lock into an annuity at current better levels."
Ian King added: "The one thing higher interest rates do is to reduce pensions scheme deficits, which is good news for those running the schemes."
'Young people having a really tough time of it'
Keval:
Do you think the interest rate hikes, along with a decline in mortgage applications and home sales will have an impact on young people’s futures?
Older homeowners need to have more sympathy for younger people, says Sky's Ian King.
"People forget back then, housing affordability was much more modest in those days, yes interest rates were much higher but it was much easier to get on the housing ladder back in the 1980s than it is now."
Young people, he says, "have had a really tough time of it", particularly given the "punitive" interest levied on students.
"Older people like myself need to have a good deal more sympathy for the young in this respect."
Is it worth buying in the current climate?
DCH:
My partner and I want to buy a home together. Neither of us have debts. Is it worth buying in the current climate?
Laura Suter said: "There is a financial side to this decision and a lifestyle side.
"Maybe this crunch on mortgages could lead to house prices falling, but what is more important for first time buyers in having a roof over their head that they own and not being beholden to a landlord.
"If it is important to you to own your own property, then there is no point trying to predict the market.
"And landlords are passing on these increases to renters in any case."
Will mortgage rates will be better in 2025?
Ewan:
My girlfriend and I have bought our first house, on a 2-year fixed rate. Will mortgage rates will be better in 2025?
Laura Suter, head of personal finance at AJ Bell said: "I'm going to put a caveat here that forecasting interest rates is almost impossible.
"But, we are expecting interest rates to rise to around 6% by the end of this year. People often expect the rates to drop again relatively quickly but we are not expecting that to happen now. We are expecting them to stay at that level for a decent period of time before rates are cut again.
"What mortgage holders need is not only for rates to stop rising but also for them to be cut way back down.
"Anyone coming to remortgage over the next 2-3 years will likely see these higher rates.
"We need inflation to come down before the rates drop."
Ian King added that it was possible rates may start to come down by 2025, but it was not a certainty.
Where is the extra money going?
Tom:
If our mortgages have tripled from £200 a month to £600, where does that £400 extra a month go?
Laura Suter, the head of personal finance at AJ Bell, says because of the rise in interest rates, borrowing costs are more expensive.
"Mortgage companies need to be able to borrow that money to lend it out to individuals so their costs have gone up," she says.
"On top of that, mortgage companies are profit-making organisations so they are going to make some profit on top of that," she adds.
Riz Malik, mortgage broker, says: "The Bank of England, the main role is to get inflation down to 2% and today they have shown they are very laser focused in doing that. The government, Rishi and Jeremy, have said they are not going to get involved."
He says it is now up to individuals to take personal responsibility.
"I don't think there is going to be any safety mechanisms here," he says.
