Interest rates continue to climb as Bank of England battles inflation

“Today’s half-point hike in interest rates from 1.25% to 1.75% will be dismal news for borrowers already digesting successive rises this year. While the Bank of England raises interest rates ever higher in an attempt to reduce inflation, which reached a 40-year high of 9.4% in June, people with variable rate mortgages face higher payments, weeks ahead of the energy price cap rise on October 1st.

“A half per cent rise in mortgage rates will cost someone with a £200,000 25-year repayment mortgage over £50 extra a month. And of course the rise of other costs mean people’s pockets will be being hit hard – but a year ago the base rate was just 0.1%, so borrowers with a £200,000 mortgage are now paying approximately £180 extra a month. That’s on top of higher food and fuel prices.

“Savers, on the other hand will be encouraged that savings rates, if passed on fully, will see rates come out of the doldrums. Banks and building societies don’t necessarily raise interest rates on all their savings products and may not increase them by the same amount, so it’s worth waiting a few weeks before checking comparison websites and best-buy tables to see if you can get a better interest rate.”

Six steps to cope with an interest rate rise:

1. Check how much interest your savings are earning. Some easy access accounts pay 0.1% interest, or even less so you could be in for a nasty surprise.
2. Check comparison sites and best buy tables for savings products but wait a couple of weeks before you choose, so banks and building societies can announce any savings rate rises.
3. Use comparison or mortgage broker websites to see how your variable mortgage rate compares to the best buys.
4. Not all mortgage lenders take the same approach when assessing whether they want to lend to a particular borrower. A mortgage broker can advise you on the best option for you.
5. Be aware that while the interest rate on personal loans is fixed, rates on credit cards can rise for both new and existing customers.
6. If you’re struggling, talk to your lender or a debt advice charity such as StepChange or National Debtline.