Recently, the Bank of England implemented the largest interest rate raise in 27 years in order to reduce inflation.
The move is seen as the most efficient solution to the cost of living crisis, but millions of borrowers are facing new troubles.
The interest rate raise this time has increased from 1.25% to 1.75%, which has increased the cost and pressure of loan repayment.
Raising Interest Rates to Ease Inflation
Higher interest rates make it more expensive for people to borrow money, and most people prefer to save rather than take out loans during this period.
From another perspective, when people’s consumption of goods and services declines, product prices also rise slowly.
This contributed to the effect of suppressing inflation and continued to maintain stable prices.
What is the Impact of the Rate Hike?
If you are charged a variable interest rate on your loan, the repayment amount may fluctuate as the interest rate changes.
With a 0.5% increase in currently, your monthly repayments will be higher than before (depending on your loan amount).
If you take a fixed rate, you will not be affected by any one for a fixed term.
The good news is that if you still have deposits in your interest-paying bank account, you’ll see it on your deposits rise.
Are Credit Card Interest Rates Affected?
Credit card interest rates are variable, but generally not tied to the base rate.
Credit card interest rates don’t automatically rise but have been moving in recent months.
So if you notice any change in your credit card repayment rate, it’s not necessarily affected by the base rate.
Will Interest Rates Continue to Rise?
According to the Bank of England forecast, the direction of interest rates depends on the rate of inflation in the coming years.
Bank rates are determined by reviewing economic conditions and adjusting rates eight times a year as needed.
Current bank rates will continue until September 15, 2022, meaning any outcome will not change anytime soon.
Rising interest rates are not only affecting mortgage homebuyers, but some renters as well.
Renters could face higher rents if the owner of the home they are renting is paying off their mortgage.
Rising interest rates will also affect households already squeezed by life crises, leaving them with less and less money at their disposal.
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