Interest rate hike will leave homeowners £677 each out of pocket

Homeowners are now facing the cost of a triple whammy of base rate woes. News of a third increase (of 0.25% to 5.75%) will stretch purse strings even tighter - two previous base rate rises in 2007 have already cost the average homeowner an additional £433 a year in higher mortgage repayments, but this third move will now see them out of pocket by a total of £677, according to research by uSwitch.com, the independent online comparison and switching service.

And there may be more bad news to come. If rates rise later in the year to 6% as expected, homeowners will see their costs soar to an extra £923 each year, if the full anticipated 0.25% rate rise is passed on by mortgage companies.

But uSwitch.com research has revealed that it is not just the cost of mortgages that has risen this year. Banks have been steadily putting overdraft rates up, while the sub-6% personal loan market is no-more. But by being savvy with rates and switching to the best deals consumers could still make significant savings.

Banking – overdraft rates have gone up by 0.93%

Between January and June 2007, while the Bank of England hiked interest rates by 0.50%, authorised overdraft rates on current accounts rose on average by nearly 1% (0.93%). In contrast, credit interest rates on current accounts have risen by an average of just 0.02%, with many of the big banks still offering customers an in-credit rate of a measly 0.1%. In light of today’s 0.25% increase in the base rate, it would be no surprise to find overdraft rates heading even higher. Current account customers should switch to a current account with a high in-credit interest rate such as Alliance & Leicester Premier Direct Current Account which offers 6.50% AER on balances up to £2,500 and a 0% overdraft for 12 months, 5.9% EAR typical thereafter.

Credit cards

When it comes to credit cards, average purchase APRs are still in double figures so consumers with a debt on a credit card should switch to a 0% credit card deal on balance transfers and save hundreds of pounds. For example, someone transferring a balance of £3,000 from a credit card with a typical APR of 15.90% could save over £400 by switching to Barclaycard Platinum M’C/Visa Intro Exclusive, which offers 0% on balance transfers for 13 months with a 3% balance transfer fee and a typical 14.9% APR for purchases.

Personal loans – end of the sub-6% loan

The lowest personal loan interest rates have been under 6% for the last couple of years but, as the base rate has risen, so too have loan interest rates. The average loan rate on personal loans has increased by 0.74% since the start of the year - from 10.98% to 11.72% between January and June. However, the good news is that anyone who has already taken out a fixed rate personal loan is protected against any base rate rises. A personal loan is a good way to consolidate debt on credit cards, store cards and overdrafts. For example, moving debts of £5,000 onto a 6.3% Moneyback Bank Loan could save the customer up to £870.30

Mike Naylor, personal finance expert at uSwitch.com, says: “The Impact of three base rate rises this year should not be underestimated – this is going to hurt a lot of households, especially those with variable rate mortgages. Thankfully, consumers can still cover the cost of the mortgage interest rate rises just by being a bit more savvy and switching their current account, credit cards and loans to get a better deal. They can also cut the cost of one of their biggest household expenses by up to £325 just by switching energy providers.

“With so much now at stake, it is more important than ever that people take control of their own finances, and not be afraid to switch. Loyalty doesn’t pay so we all need to stay one step ahead and actively hunt out the best deals. Failure to do anything will mean that people will be hit by another triple whammy of rising mortgage costs, paying more for borrowing on credit cards and overdrafts than they need to, and at the same time missing out on interest on money in their bank accounts.”