23 March 2023
If you are covering the Bank of England’s interest rate decision and its impact on a variety of personal finance issues, please see the following comment from Rio Stedford, financial planning expert at Quilter:
Mortgages
"Today’s increase in interest rates will directly impact those with variable-rate or tracker mortgages who will have seen their monthly bills creep up as the Bank of England has ratcheted up rates eleven times in a row now. We’ve already seen the impact that this is having on housing transactions with levels down 18% in February as higher rates have discouraged borrowers from buying properties that would increase their monthly bills. Homeowners on fixed-rate mortgages, however, will be unaffected until their fixed term expires.
"For those looking to buy a home or refinance their mortgage, fixing for a relatively short period is likely to be your best course of action as rates are predicted to fall. Therefore, fixing for a long time might mean that you are stuck paying higher rates for longer than necessary.
Savings
"For savers, this increase may lead to better returns on savings accounts, as banks and financial institutions adjust their interest rates in line with the Bank of England's base rate. However, it's essential to shop around for the best rates as not all banks increase their rates as quickly as others. It’s also worth considering other savings vehicles such as fixed-term deposits, bonds, or even diversified investments to maximise returns.
Annuities
"The rise in interest rates can have a positive effect on annuity rates, which are closely linked to government bond yields. Higher interest rates generally lead to higher bond yields, which in turn lead to better annuity rates. This means that retirees who are about to purchase an annuity could receive a higher income throughout their retirement. Individuals nearing retirement should closely monitor interest rates and bond yields and consult with a financial adviser to determine the best course of action when considering purchasing an annuity.
Credit Cards
"As the Bank of England raises its base rate, credit card users may see an increase in their card's interest rate, making it more expensive to carry a balance. To minimise the impact of increased interest costs, cardholders should consider paying off outstanding balances as quickly as possible or explore balance transfer options to take advantage of lower interest rates. Furthermore, credit card users should be mindful of their spending habits and avoid accumulating additional high-interest debt, as higher interest rates can make it more challenging to pay off balances in the long run.
Debt
"Individuals with outstanding debts, such as personal loans or car loans, may face higher interest costs in a new interest rate environment. To counter the increased cost of servicing debt, it's crucial to prioritise paying down high-interest debt first and explore options for consolidating or refinancing loans to secure lower interest rates. Debt management strategies, such as creating a budget, cutting unnecessary expenses, and increasing income through additional work or side hustles, can also help individuals stay on top of their debt payments and avoid potential financial strain caused by rising interest rates."
