What does a base rate rise mean for you?

The Bank of England looks set to hike rates this year

What would a base rate rise mean for YOU?

The base rate set by the Bank of England could increase very soon, with Governor Mark Carney forecasting that "interest rates would increase somewhat" in the "relatively near term" if the economy stays on track.

He has promised that any increases will be gradual and limited. But this remains big news for borrowers, savers, investors, and even holidaymakers hit by the low value of the pound.

See also: Savers guaranteed 0.5% minimum rate by a building society

See also: How the Bank of England hiking interest rates will affect your portfolio

The base rate last changed in August 2016, when it was cut to a record low of 0.25% in the wake of the Brexit referendum.

Before that, it had held steady at the historically low rate of 0.50% since March 2009.

Such a long period of low rates means they are the only kind of rate younger savers and borrowers know.

But the base rate is not always low; 10 years ago, just prior to the credit crunch, it was 5.75%; and it has hit close to 15% within the last 30 years.

Here, we take a look at what a base rate rise would mean for you and your family.

Savers

Most hard-pressed savers will be delighted to hear that a base rate rise is on the horizon, even if it is only a small one.

But beware: although most variable savings account rates are linked to the base rate, providers do not always pass rate rises on to their customers.

Figures from savings advice website Savings Champion shows that five years ago, when the base rate was 0.50%, the average live easy access account was paying 0.74%.

Today that average rate has fallen to 0.35% - a drop of 0.39%, even though the base rate has only come down by 0.25% in that time.

So keep an eye on whether or not your bank changes its rate in line with the change introduced by the Bank of England - and switch to a rival paying a better rate if it fails to take action.

Borrowers

When it comes to mortgage rates, banks and other lenders are often a lot quicker to react to a base rate rise.

That's not just because they are mean. Many mortgage rates are actually linked to the level of UK government bonds rather than the base rate, meaning they have already started to go up due to expectations of higher rates.

Halifax, Skipton and Nationwide have all increased their rates in recent weeks.

The good news, however, is that a 0.25% rise is unlikely to make a big difference to your monthly repayments, even if you are on a variable rate deal.

On the average mortgage, a rise of this size would add just £15 a month to the cost of paying it off.

You may want to consider switching from a variable rate deal to a fixed rate mortgage if you think rates will continue to go up, though.

Investors

Higher interest rates usually push the price of government and corporate bonds down.

So while existing bond investors lose, those looking to buy gilts and bonds can often achieve a higher income - making it potentially a good time to invest, especially if you think rates will stay at a similar level afterwards.

Rising rates can also have an negative impact on stocks that pay a high dividend, as they become less attractive in relation to savings accounts.

You may want to review you investments in this areas as a result.

Holidaymakers

A higher base rate is good news for the pound. When the Bank of England first hinted a rise was on the cards last month, the pound jumped more than 1% against both the euro and the dollar.

And that means anyone heading on an overseas trip in the next few months could do well to delay getting their holiday money in the hope the Bank of England makes a move and the pound rises on the back of that.