Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

How would an interest rate rise affect you?

How would an interest rate rise affect you?

Everyone in the UK will be affected by rising prices - from a higher gas bill, to harder choices during the grocery shop.

The idea of raising interest rates is to keep those current and predicted price rises, measured by the rate of inflation, under control.

Higher interest rates make borrowing more expensive. For households, that could mean higher mortgage costs, although - for the vast majority of homeowners - the impact is not immediate, and some will escape it entirely.

Analysts are also warning that the potential benefit of a better return on savings could be muted.

Homeowner impact


Even before any decision is made by the Bank of England's rate-setting Monetary Policy Committee, there are signs that the era of ultra-low mortgage rates is at an end.

Some lenders have already started to raise rates for those applying for a new home loan.

It has been an extraordinary period of cheap mortgages, and - in the last few months - there have even been good deals for first-time buyers unable to offer much of a deposit.

Brokers are expecting any rises in mortgage rates to be "slow and measured", which would mean mortgages would stay cheap by historical standards for some time.


It is a little-discussed fact that only about a third of adults have a mortgage.

About a third rent their home, another third have either never had a mortgage or have paid it off. Those figures come from the English Housing Survey, which is geographically limited, but one of the most comprehensive guides available.

Some 74% of mortgage holders in the UK are on fixed-rate deals, so would only see a change in their repayments when their current term ends, according to banking trade body UK Finance.

Of the remainder, 850,000 homeowners are on tracker deals, and the other 1.1 million are on standard variable rates (SVRs). They are the people likely to feel an immediate impact were the Bank rate to rise.

If their rates mirrored a Bank rate rise to 0.25% from its current level of 0.1%, then a typical tracker mortgage customer's monthly repayment would go up by £15.45. The typical SVR customer would be paying £9.58 more a month, UK Finance figures show.

If there were a much bigger Bank rate rise to 1%, and lenders raised their rates by the equivalent amount, then the average tracker customer would pay £93 a month more, and the typical SVR customer would pay £57 a month more.

That would be a further squeeze on their household budget at a time when people have been used to years of cheap borrowing and relatively slow-rising prices.

Every mortgage applicant since 2014 would have needed to prove in stress test that they can pay at a rate of about 6% or 7% - the idea being that a small rate rise may be uncomfortable, but not unmanageable, for homeowners.

Katie Brain, from independent analysts Defaqto, says rates "had to start going back up at some point" but reminds anyone looking for a mortgage that any benefits of a low-rate deal could be wiped out if the applicant ignores expensive fees.

Time to save?


A collective sigh of relief would be heard from savers were interest rates to rise, but it could quickly be followed by a sharp intake of breath.

Analysts warn that, even if the Bank rate rises, there is no guarantee of that being reflected in better returns on savings.


Savers are often borrowers too, but the money in the bank has effectively been falling in value for some time.

Anna Bowes, of website Savings Champion, says that rates have been falling in the last year, even though the Bank of England's base rate was unchanged.

People are receiving pennies in interest for every £100 they keep in savings for a year. A Bank rate rise will do little to change that scenario.

The average interest rate for an easy-access account you can open today is 0.14%. For easy-access accounts closed to new customers, it is 0.22%.

The highest paying easy-access account has an interest rate of 0.66%.

Sarah Coles, from investment firm Hargreaves Lansdown, says many savers have switched off from paying much attention to their returns.

"When we asked people whether they knew what they were earning on their savings, two in five admitted they had no idea," she says.

"Even those who think they have a handle on their savings may well be off the mark. When we asked people what they were making on their easy access savings, most of them wildly overestimated."

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
U.S. and Hungarian Officials Talk About Economic Collaboration and Sanctions Strategy
Technology Giants Activate Lobbying Campaigns Against Strict EU Regulations
Pope Francis Admitted to Hospital in Rome Amid Increasing Speculation on Succession
Zelensky Calls on World Leaders to Back Peace as Tensions Rise with Trump
UK Leader Keir Starmer Calls for US Security Guarantee in Ukraine Peace Deal
NATO Chief Urges Higher Defense Expenditure in Europe
The negotiation teams of Trump and Putin meet directly, establishing the groundwork for a significant advancement.
Rubio Touches Down in Riyadh Before Key U.S.-Russia Discussions
Students in Serbian universities Unite to Hold Coordinated Protests for Accountability.
US State Department Removes Taiwan Independence Statement from Website
Abolishing opposition won't protect Germany from Nazism—this is precisely what led Germany to become Nazi!
Transatlantic Gold Rush: Traders Shift Bullion in Response to Tariff Anxieties and Market Instability
Bill Ackman Backs Uber as the Company Shifts Towards Profitability
AI Titans Challenge Nvidia's Supremacy in Light of New Chip Innovations
US and Russian Officials to Meet in Saudi Arabia Over Ending Ukraine Conflict. Ukraine and European leaders – who profit from this war – excluded from the negotiations.
Macron Calls for Urgent Summit as Ukraine Conflict Business Model is Threatened
Trump’s Defense Secretary: Ukraine Won’t Join NATO or Regain Lost Territories
Zelensky Urges Europe to Bolster Its Military in Light of Uncertain US Backing
Chinese Zoo Confesses to Dyeing Donkeys to Look Like Zebras
Elon Musk is Sherlock Holmes - Movie Trailer Parody featuring Donald Trump's Detective
Trump's Greenland Suggestion Sparks Sovereignty Discussions Amid Historical Grievances
OpenAI Board Dismisses Elon Musk's Offer to Acquire the Company.
USAID Uncovered: American Taxpayer Funds Leveraged to Erode Democracy in Europe Until Trump Put a Stop to It.
JD Vance and Scholz Did Not Come Together at the Munich Security Conference.
EU Official Participates in Discussions in Washington Amid Trade Strains
Qatar Contemplates Reducing French Investments Due to PSG Chief Investigation
Germany's Green Agenda Encounters Ambiguity Before Elections
Trump Did Not Notify Germany's Scholz About His Ukraine Peace Proposal.
Munich Car Attack Escalates Migration Discourse Before German Elections
NATO Allies Split on Trump's Proposal for 5% Defense Spending Increase
European Parliament Advocates for Encrypted Messaging to Ensure Secure Communications
Trump's Defense Spending Goal Creates Division Among NATO Partners
French Prime Minister Bayrou Navigates a Challenging Path Amid Budget Preservation and Immigration Discourse
Steering Through the Updated Hierarchy at the European Commission
Parliamentarian Calls for Preservation of AI Liability Directive
Mark Rutte Calls on NATO Allies to Increase Defence Expenditures
Dresden Marks the 80th Anniversary of the World War II Bombing.
Global Community Pledges to Aid Syria's Political Transition
EU Allocates €200 Billion for AI Investments, Introduces €20 Billion Fund for Gigafactories
EU Recognizes Its Inability to Close the USAID Funding Shortfall Due to Stalled US Aid
Commission President von der Leyen Missing from Notre Dame Reopening Due to Last-Minute Cancellation
EU Officializes Disinformation Code for Online Platforms, Omitting X
EU Fails to Fully Implement Key Cybersecurity Directives
EU Under Fire for Simplification Discussions Regarding Corporate Sustainability Reporting
Shein Encountering Further Information Request from the EU During Ongoing Investigation
European Commission Initiates Investigation into Shein as It Aims at Chinese E-Commerce Regulations
German Officials Respond to U.S. Proposal for Peace Talks with Russia
Senate Approves Robert F. Kennedy Jr. as Secretary of Health and Human Services.
Trump and Putin Engage in Discussions on Ukraine Peace Negotiations Amid Worldwide Responses
Honda and Nissan End Merger Talks
×