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Once again, the Bank of England is expected to announce increased interest rates. This will be the ninth consecutive hike in the last year, since December 2021. The latest meeting by the Monetary Policy Committee has resulted in an increased benchmark rate.
The benchmark rate currently stands at 3%, but is forecast to increase to 3.5%. The rate is already at its highest rate for 14 years, after it was increased in November from 2.25% to 3%, the sharpest single increase since 1989. These increases will be felt by both borrowers and savers across the UK.
But with forecasts of interest rates peaking at 4.5% next year, how do increases affect you exactly? Here, we will discuss how these changes could impact your finances.
After a period of low-interest rates, those with a mortgage are now facing increased monthly repayments as a result of high-interest rates. From next year, around 4 million households will face more expensive mortgages, according to the Bank of England.
When the interest rate rise comes into force, approximately 1.6 million people will be impacted. These are mainly the people on variable and tracker mortgages. Half a percentage point added onto to the current rate of 3% will mean an added £49 a month for those n a typical tracker mortgage. Those on a standard variable rate mortgage could see £31 per month being added to their current payment.
On average, those on an average tracker mortgage are paying £333 more monthly compared to December 2021. This amount stands at £210 more per month for those on variable mortgages. This is an additional £3,996 and £2,520 being added to mortgages annually on average over the past 12 months.
In terms of fixed deals, they have also increased. An average two-year fixed deal stood at 2.29% in November 2021. This is now an average of just under 6%, adding hundreds of pounds of repayments monthly.
Banks and building societies are in charge of the interest rates they offer on their savings accounts. Although interest rates are the highest we have seen in many years, due to inflation outpacing these rates, the amount of money in cash savings accounts is losing value, in real terms.
This means the buying power of your money is still reducing due to inflated prices for good and services.
Credit cards and loans are also impacted by the Bank of England Interest Rates. Loans could be car loans, bank loans or even debts.
In October of this year, the average annual interest rate on bank overdrafts was a whopping 20.73%. For credit cards, the annual interest rate was averaging at 19.31%, another eyewatering figure. This means it becomes more expensive to borrow money, and debt may grow.
Lenders may even choose to get ahead of increases and put their interest rates up further.