Bad news for borrowers as interest rates hiked to a 13 year high

• Fourth successive rise takes base rate to 1.00%
• Highest level of interest rate since 2009

Commenting on today’s announcement from the Bank of England, Sarah Pennells, Consumer Finance Specialist at Royal London says:

“Interest rates have increased for the fourth time in six months with the latest hike taking the base rate to its highest level since 2009, rising by a quarter-point from 0.75% to 1.00%.

“Interest rates rose in December for the first time since 2018 and the Bank of England hasn’t paused for breath since, with four successive rises signalling the end of a sustained period of ultra-low rates.

Savers

“Savers are being hit with a double whammy. Those who can leave their savings untouched will still lose money in real terms, despite today’s rate rise, because the return on cash held in savings is significantly below the current high level of inflation. The rise in the cost of living, outpacing the rise in wages, is also forcing others to dip into their savings, with a quarter (24%) of full time workers in the UK  looking to access some or all of their short term savings to help them get by day to day.

“A fall in disposable income also means we’re spending more and saving less. As costs continue to rise, it’s turning on its head the situation created during the pandemic where millions became ‘accidental savers’ to a situation where inflation is forcing us to become ‘accidental spenders’.

Borrowers

“Alongside interest rates, sharp rises in household bills and the general cost of living is a huge concern for 95% of adults in the UK, leaving many wondering how they’ll make ends meet. Worryingly, a fifth (21%) of people plan to borrow their way out of trouble, at a time when the cost of borrowing is escalating.

“Mortgage borrowers on a variable rate have barely had time to deal with the effects of the last rate rise and are now faced with a further increase. Every quarter per cent rise in mortgage rates costs someone with a £200,000 25-year repayment mortgage an extra £27 a month. While some homeowners will be able to afford that, others will undoubtedly struggle, especially as other costs spiral.”

*Royal London commissioned a survey by Opinium between 25 February and 1 March 2022 with a sample of 4,001 nationally representative UK adults.