Posted 4 August 2022
UK Interest rates rise again, from 5% to 5.25%. What does it mean for you? Plus some useful help links
Update 2
UK interest rates will remain at 5.25% after figures revealed a slowdown in UK price rises in August.
Update 21/09/23 - Way back in August 22, the Bank of England announced that interest rates would increase from 1.25% to 1.75%, fast forward to August 23 we had a further 0.25% hike, bringing the base rate to 5.25%. Today, we expected another rate rise, but thankfully it seems to be stabilising, the UK interest rates will remain at 5.25% after figures revealed a slowdown in UK price rises in August.
Unfortunately, these recent rate rises increase the cost of borrowing for many people, and in particular, the rise of the base rate will impact many mortgages.
While this is far from the highest interest rates that have been over the past 20 years, it will definitely have an impact due to the price increases on groceries, electricity, oil, and other essentials. I think most of us have already been feeling the pinch of this
Why are interest rates in the UK rising?
"We’ve put up interest rates up to help bring inflation back down. It will take time to work.
The cost of living has risen sharply over the last year. The speed of that increase is called the rate of inflation.
It’s our job to keep the UK’s rate of inflation low. We have a target of 2%. It’s higher than that at the moment. That’s mainly because of two things:
Since December 2021, we’ve increased our key interest rate, Bank Rate, from 0.1% to 1.25%.
But it will take time to work. It’s likely that inflation will keep rising this year and start to come down next year. We expect it to be close to our 2% target in around two years."
How does an interest rate rise help bring inflation down?
"When Bank Rate goes up (or down), it affects all the other interest rates in the UK, so it is a very important ‘benchmark’ interest rate for the economy as a whole.
Higher interest rates make borrowing more expensive and encourages saving. Both of those things reduce how much people spend overall. This helps to push inflation down.
But higher interest rates don’t work straight away. They take time to take full effect. So when we use them, we always look at what will happen in the economy over the next few years, not just what’s going on now.
The action we take to keep inflation low and stable is called monetary policy.
Since December 2021, we have increased our interest rate from 0.1% to 1.25%."
How could this affect you?
Mortgages
These are obviously very worrying times for a lot of people on top of the financial pressures of the current cost of living crisis - if you do end up struggling to pay your mortgage there are steps you can take and you should contact your mortgage provider.
Renters
While this shouldn't directly affect rental costs, it's likely buy-to-let landlords will eventually pass on higher borrowing costs to their tenants in the future
Savers
A rise in interest rates should be positive for those who are able to squirrel away some extra money in their savings account, as they should earn a little more interest each year. Unfortunately due to rising costs, and increasing energy bills most are experiencing a lack of disposable income, so there are less opportunities to save for a rainy day.
Struggling with Debt?
Don't struggle alone, and try to deal with it all by yourself. Reach out and get some help:
- Scotland
- Wales
- England
Help with energy costs and other essentials
Help with finances
Struggling with your Mental Health?
Ever-increasing bills and a lack of support from the government can cause huge pressure for most of us, but especially those with mental health problems. Please reach out if you are struggling, below are some organisations who may be able to help you in a time of crisis (I'm sure there are many more)
News Source - Sky
News Source Bank of England
Some threads that may help you save money with cut costs
What can you do to help cut costs when buying goods? How do we shop smarter and other information to help
Top 5 Music Streaming Services: How To Try Them For Free and Get Their Best/Cheaper Offer
Octopus to launch 'free' heat pump package, depending on set-up / Winter Fuel Payments Up to £600 / Energy bills Help +Discounts, Grants etc
10 Airline stopover programs + free or discounted hotel stays / experiences - 2023
The Best Loyalty Cards 2023 - Perks, offers, discounts, vouchers and more
Hand luggage rules for Flights 2023 including British Airways, easyJet, Jet2, Ryanair, TUI...
Best times to get yellow sticker reductions across supermarkets plus online grocery shopping codes
Buyers Guides
Ten Top Tips on how to save at home - What ideas or tips do you have?
Tips & tricks to save money at the fuel pump
Links and advice if you're struggling with depression, loneliness, addiction, illness, stress etc
Unfortunately, these recent rate rises increase the cost of borrowing for many people, and in particular, the rise of the base rate will impact many mortgages.
While this is far from the highest interest rates that have been over the past 20 years, it will definitely have an impact due to the price increases on groceries, electricity, oil, and other essentials. I think most of us have already been feeling the pinch of this
Why are interest rates in the UK rising?
"We’ve put up interest rates up to help bring inflation back down. It will take time to work.
The cost of living has risen sharply over the last year. The speed of that increase is called the rate of inflation.
It’s our job to keep the UK’s rate of inflation low. We have a target of 2%. It’s higher than that at the moment. That’s mainly because of two things:
- higher prices of goods coming from abroad
- large increases in the cost of energy
- there are more job vacancies than there are people to fill them, which means employers are having to offer higher wages to attract job applicants
- businesses are charging more for their products
Since December 2021, we’ve increased our key interest rate, Bank Rate, from 0.1% to 1.25%.
But it will take time to work. It’s likely that inflation will keep rising this year and start to come down next year. We expect it to be close to our 2% target in around two years."
How does an interest rate rise help bring inflation down?
"When Bank Rate goes up (or down), it affects all the other interest rates in the UK, so it is a very important ‘benchmark’ interest rate for the economy as a whole.
Higher interest rates make borrowing more expensive and encourages saving. Both of those things reduce how much people spend overall. This helps to push inflation down.
But higher interest rates don’t work straight away. They take time to take full effect. So when we use them, we always look at what will happen in the economy over the next few years, not just what’s going on now.
The action we take to keep inflation low and stable is called monetary policy.
Since December 2021, we have increased our interest rate from 0.1% to 1.25%."
How could this affect you?
Mortgages
These are obviously very worrying times for a lot of people on top of the financial pressures of the current cost of living crisis - if you do end up struggling to pay your mortgage there are steps you can take and you should contact your mortgage provider.
Renters
While this shouldn't directly affect rental costs, it's likely buy-to-let landlords will eventually pass on higher borrowing costs to their tenants in the future
Savers
A rise in interest rates should be positive for those who are able to squirrel away some extra money in their savings account, as they should earn a little more interest each year. Unfortunately due to rising costs, and increasing energy bills most are experiencing a lack of disposable income, so there are less opportunities to save for a rainy day.
Struggling with Debt?
Don't struggle alone, and try to deal with it all by yourself. Reach out and get some help:
- Check your options for getting out of debt - Citizens Advice - If you’re in debt to your energy firm, Citizens Advice also has a list of Grants to help pay off your energy debts
- CAP - offers free professional money and debt advice and counselling
- Scotland
- Wales
- England
- Stepchange - Free Debt advice and support
- National Debtline- Free debt advice
Help with energy costs and other essentials
- Ofgem has a list of government schemes, grants and benefits to help with home energy costs.
- Citizens Advice lots of advice here including info on food banks
- Trussell Trust has an interactive map showing you foodbanks across the UK.
Help with finances
- Turn2Us have a free benefits calculator.
- The Money and Pensions Service offers free guidance on a range of money issues with their ‘Money Helper’ tool
Struggling with your Mental Health?
Ever-increasing bills and a lack of support from the government can cause huge pressure for most of us, but especially those with mental health problems. Please reach out if you are struggling, below are some organisations who may be able to help you in a time of crisis (I'm sure there are many more)
- You can find advice on the Mind, Rethink, or Mental Health Foundation website, or at NHS choices.
- You can also call the Samaritans on 116 123 free for 24-hour support if you want to talk to someone.
News Source - Sky
News Source Bank of England
Some threads that may help you save money with cut costs
What can you do to help cut costs when buying goods? How do we shop smarter and other information to help
Top 5 Music Streaming Services: How To Try Them For Free and Get Their Best/Cheaper Offer
Octopus to launch 'free' heat pump package, depending on set-up / Winter Fuel Payments Up to £600 / Energy bills Help +Discounts, Grants etc
10 Airline stopover programs + free or discounted hotel stays / experiences - 2023
The Best Loyalty Cards 2023 - Perks, offers, discounts, vouchers and more
Hand luggage rules for Flights 2023 including British Airways, easyJet, Jet2, Ryanair, TUI...
Best times to get yellow sticker reductions across supermarkets plus online grocery shopping codes
Buyers Guides
Ten Top Tips on how to save at home - What ideas or tips do you have?
Tips & tricks to save money at the fuel pump
Links and advice if you're struggling with depression, loneliness, addiction, illness, stress etc
Community Updates
Update 1
The UK's interest rate has been raised to 5.25% by the Bank of England,
3136 Comments
sorted bySo many have had access to cheap money, they have been buying with reckless abandonment. Now they will actually need to think twice before borrowing.
That's the main gist of it. People are generally terrible with money and hate to live within their means so I don't think these rates to deter that many.
the biggest hike headline is a bit of a misnomer, the end of the day interest rates are still far lower than during the credit crunch in 2008
** note this is last months Graph 1.75 now
If they were higher like post 2008 the bank could cut rates to stimulate growth, now they cant.
Whelp, guess it's over for me.
Dates (edited)
Good FD rates on raisin platform for short and long term.
I know about inflation eating into savings interest etc.. but for those sitting on cash and not actively investing can atleast get some decent interest.
All FSCS protected upto 85k in each. (edited)
They don't tend to cost themselves money these banks
It makes sense that this 0.5 increase is a sign of things to come and there will be many more rises on the horizon. If anything this is going to make us be a little more money smart as a society.
The time of the cautious saver has come. (edited)
Cautious savers earning 1% in a bank account not knowing inflation is eating their pennies away at 15%
5.25% is low, I can see it going up again twice more in the near future.
What I don't understand is how the Governor of the Bank of England has not been sacked? And why he gets a bonus?.
This Country appears to reward failure nowadays, whether it be a gong like Chris Whitty and Patrick Vallance, or severance pay like Nat West and Coutts resignations.
Even Liz Truss after crashing the economy received a pay out for being an ex PM?
To put it into historical perspective, until the big falls in 2008, the base rate had never been below 2% in the nearly 300 years since it was introduced, hadn't been below 3.5% since the early 50s and in the entirety of the 70s, 80s and 90s it never dropped below 5%.
If you or me print money we go to jail, when the central bank prints money they call it quantitative easing or stimulus in the USA.
I'd rather have 1979 rates on 1979 house prices, than 2023 rates on 2023 house prices currently.
Raising the interest rates already, should have reduced the inflation rate (and its a very dodgy way that they measure it in the first place, when everyone knows it is much higher in real life). But it hasn't
Interest rates aren't the only tool, the useless owned politicians could 'tax' the corporations and elites better..but they don't (+ they are more immune to 'local' interest rates, as they diversify globally and move assets around on paper).
Always more and more for the elites..and the pl ebs have to always make do and keep quiete with less and less.
People need to wake up to the fact that the likes of sunak, elite etc, for them money is like rain and air...its meaningless..they don't care if bread doubles in price, it has no impact on them.
67% of our 3 trillion economy goes to less than 1% of the UK population. The logic of the last 40+ years being it "trickles down".
It sort of has, into second and third homes in my area (which has of course driven various rural housing bubbles in desirable areas). But that's about it really. So much more just disappears abroad or into international markets and private financial funds etc now.
(That said, I do think rates are going to go a lot higher, I'm afraid.) (edited)
bbc.co.uk/new…222 (edited)
rates should be 10% and stay there for decades.
Average Wage: £25,183 after tax
Mortgage Interest Only @ 10%: £28,800
Do you see a problem with that?
Property Industry Eye: Banks are preparing for house prices to fall by a third.
propertyindustryeye.com/banks-are-preparing-for-house-prices-to-fall-by-a-third/
It's anything from, if you say they will crash it's a self fulfilling prophecy, vs. those saying it's going to happen.
Even if prices don't change, inflation will ineffect be devaluing the house, so they need to rise.
However, the cost of living crisis as it had been called is causing issues in affordability. People are taking on mortgages based on what they can afford to pay per month. Just like mobile phones, car finance,etc. The actual house price is almost irrelevant. As rates are rising, their monthly costs go up. If they cannot afford those costs, then they need to borrow less which in turn leads them to offering less as it's the maximum they can afford.
It's this monthly payment that pushed people into interest only mortgages which started to blow up because people forgot they were 5 years away from the end but still had the original £110k loan to pay off!
You have a seperate issue with those already in a home not looking to sell. What will they do if they remortgage next October going from a rate of 1.69 to 7.19% (just made them up) if they borrowed £200k they need to find an extra £650 a month, and that's got to come from disposable income, reduce spending, or sell up and downsize. Selling will require a buyer and whilst people still want to buy, you hit the issue above regards to affordability.
Storm clouds are about but no one can say for certain what will happen. The government usually tries to prop it up, but any borrowing will make it worse since that's just devaluing the pound causing import costs to increase, which increases inflation which then increases increase rates. (edited)
My fixed rate ends in April with Santander, currently its 1.65%. The best deal I can find myself and through brokers is actually to stay with Santander on their variable 2 year tracker at 4.24% with a fee of £999 (added onto the mortgage) over 25 years. I've accepted this offer, but there's no exit fees so I can look for other deals if I wanted. If I was to do nothing and take their follow on rate its over 6%.
My current monthly payment is £390 p/m and from April will go up to £519 p/m (not including todays rise).
My LTV is 44%.
I'm married, but the mortgage is in my name only. Part of the reason I stayed with Santander was because there was no need for valuations, solicitor involvement, legal fees and the 6-8 week long process etc. It's basically just a few clicks through the app.
I'm wondering if I've made the right decision? Or should I go about looking for a joint mortgage (which would include fees to add my wife to the deeds) which would take into account both our incomes rather than just mine? We also have two kids (4 and 2) which has an impact, in terms of chidcare fees etc.
Its been weighing quite heavy on my mind, I'm not sure what to do. Would love some advice.
Thanks. (edited)
I'm terms of fees it all depends on the amount you borrowed, the more you borrow the more likely a fee is worth paying. You have to work out of its worth moving for a cheaper deal. There are lots of calculators out there available to help with this comparison.
If the mortgage is already accepted, I don't see a need adding your wife to the mortgage unless you want to borrow more money, I can't see adding her would reduce the rate that they would offer and as you say it would add extra fees into the application.
New customer rates:
barclays.co.uk/content/dam/documents/personal/mortgages/CoreRangeCustomerRateSheet.pdf
Existing customer / Retention rates:
barclays.co.uk/content/dam/documents/personal/mortgages/emcrewardcustomerratesheet.pdf
Might be worth looking at your options before they are also raised.
If you're within 6 months of your fix ending, you can do this online yourself in a couple of minutes for free.
If you need to pay an ERC, You would need to rate change via a broker, as going direct via Barclays would include a 2 week wait for a callback. A broker can apply almost immediately. (edited)
Wonder if you can do it online instead of going via a broker.
Interesting to see there is starting to get more value is getting the LTV down. When rates were low there wasn't much between 90 to 70 LTV rates. (edited)
If it's a totally brand new application you wil get whatever rate the bank has on offer at the time of applying.
Enquired about a mortgage recently and I was given a rate of 3.3% from Halifax via a mortgage broker!
singing and dancing 5% current account, which they will, why would anyone risk investing in property or stocks. You’d want a 7-8% return minimum to make the capital risk worthwhile. But then add to that falling markets, where you’d be lucky not to lose 5%, you’ve got 2 markets which at current prices investors won’t even look at until they retrace. So that’s the majority of PI stock market investors put and 14% of the housing market (property investors) gone in an instant. The cost to borrow (property/mortgage) is becoming significantly higher. The number of distressed sellers increasing. The only thing going for these at the moment is the incredibly weak £ attracting foreign investment. But anyone who understands simple economics and supply/demand knows what’s coming.
To fix a new rate now would cost the early close fee (almost £3,800), and potentially a fee for the new fix (usually £750-999)
The cheapest available deal as an existing Barclays customer is 3.05% + £750 for 10 years, or 3.18% + £999 for 5 years.
So I can risk waiting until Feb and hope that the saved fees can offset the rise in interest rate over the following 60+ months, or accept the upfront loss and settle in for the long haul.
DECISIONS!!! Absolute nightmare
Rates are clearly moving up, and the predictions are 6% in spring.
The banks are obviously more clued up than us, but it doesn't mean they can predict the future.
It's a gamble either way, do you go for peace of mind, or wait it out to see if you can save money.
One way to think about it, is what can you afford the rate to goto. Because regardless of your exit fee, if the rate goes beyond your breaking point, what will you do then.
Barclays has a calculator for it.
barclays.co.uk/mor…or/
It's not going to be unreasonable to think mortgages will be between 5-7% going forward.
mobile.twitter.com/EdConwaySky/status/1572975559449407489
Found this in Twitter, obviously a trust worthy source but it's showing rate prediction per Boe meeting. Estimated 4.75% in December, 5.75% march, 6.25% August. Then tag on 0.5-2% as the actual mortgage rate.
Estimates match in with alot of other articles online based on current market conditions. (edited)
thank you. (edited)
I'm keen not to have my inbox full of people talking up a storm
Think I’m going to join you. Same old armchair experts on here talking absolute nonsense.
Don't worry though the tories will cut business rates even lower - because doing that for the last 10 or so years has really done the trick hasn't it. sadly the turkeys will keep voting for christmas
We are just discussing the reality of the situation.
The BOE are deploying the only countermeasures they have for situations like this.
The price of money will go up which is going to hurt. Especially for those who have become accustomed to this current way of life.
Mortgages are going to become much more expensive. Cars, etc.
People will be forced to adjust as they won't have the options previously afforded to them. Prices will come down( eventually) and we'll start this game all over again.
This is especially true of natural gas where prices from what I can see are the same as they were in August 2021.
I don't want to generalise, we all started at some point. But I remember reading along time ago, that benefits work well to boost the economy, as generally the lower paid don't attempt to save and will just spend it.
It's why having the tax free thresholds work well as they can keep more money for spending.
But when you give money to the wealthy they just horde it like it's a competition. (edited)
Earn 1% while inflation is 15%
:/