The Bank of England has, as predicted, raised interest rates from 2.25 per cent to three per cent.
That’s significant for three reasons – it’s the biggest single increase in more than 30 years, it’s the eighth successive increase since December, and means interest rates are now at their highest level in 14 years.
So what impact could this have on you and your life?
More expensive mortgages
Interest rates had been at a record low in the years following the 2008 financial crash. But with interest rates now on the rise, many homeowners are set to be hit with bigger monthly mortgage payments.
About two million borrowers are currently on standard variable rate mortgages and will see their payments go up by £46.22 a month on average.
Meanwhile, those with a typical tracker mortgage will see a £73.49 monthly rise, and of course, there will be many thousands of people on cheap fixed rate mortgage deals that will be ending in the coming months, leaving them faced with a big increase in costs.
It is also highly likely that lenders will pass on higher rates to those who are seeking to remortgage their property and people who are buying a new house. That, in turn, could make buying a property unaffordable for those who may, until now, have felt able to take their first step onto the housing ladder.
Increased borrowing costs
Lenders are expected to pass on the interest rate hike to anyone who’s repaying debts such as loans and credit card bills.
At the same time, it could become much more expensive if you want to take out a loan or buy items on credit in the near future.
Savers to get better returns – sort of
Higher interest rates means better returns on your savings, but there’s a catch, as the rate of inflation is much higher. That means that in real terms, your money won’t go as far as it once did.
What’s the bigger picture?
The Bank of England believes that the UK will go through its longest recession on record, with the next two years being a “very challenging” period for the economy.
Interest rates are also set to continue going up, as will the unemployment rate. Inflation, meanwhile, is predicted to hit 11 per cent this winter, before falling midway through 2023.
The Governor of the Bank of England Andrew Bailey has warned that there is a “tough road ahead” for the UK economy.
However, you’re not alone, and if you need any advice and support on how best to manage your finances and investments, please get in touch with us.