Interest rates continue to climb

Commenting on the Bank of England’s decision to increase interest rates by 0.5%, the ninth rise in 12 months, Sarah Pennells, Consumer Finance Specialist at Royal London, says:

“The Bank of England’s decision to raise interest rates to 3.5% will mean higher costs for millions of borrowers – whether that’s homeowners with variable rate mortgages or credit-card holders, whose provider decides to hike the interest rate.

"Earlier this week, the central bank warned that four million households, which includes those coming off fixed-rate deals as well as variable rate mortgage holders, face higher mortgage payments in 2023. Increased living costs and higher mortgage payments have already made it harder for people to afford debt repayments.

"A rise in mortgage rates of 0.5% will cost someone with a £200,000 variable rate repayment mortgage an extra £53 a month, but this increase comes on top of the £260 hike in monthly payments they’ll have experienced since last December, when the base rate rose to 0.25%.

"The only bit of good news is for savers, as interest rates on savings accounts have been rising over the last year. The best buy easy access accounts now pay as much as 2.9% and NS&I will be increasing its prize fund rate on Premium Bonds in January. However, with inflation currently three times this level, people who keep their money in cash – especially over the long term - will find it loses value."