Over the past couple of years, the Bank of England raised the base rate dramatically. While this was in an effort to slow rising prices and bring down the current cost of living, many households are going to feel an immediate impact on their finances.
So, who’s going to be affected and what can you do about it? To clear things up, we’ve run through how to navigate the most recent interest rate rise.
Increased mortgage payments
Those about to take the biggest financial hit are households on variable or tracker rate mortgages. According to the Bank of England, this is about 1.4 million households. What’s more, anyone who needs to remortgage soon will also be affected. It’s predicted that in total around 4 million UK households will be impacted by increased mortgage repayments this year.
Seeking help with payments
So, what can you do? Well, the first thing you should do if you don’t think you can afford to make your new mortgage payments is contact your lender. If possible, it’s best to do this before you miss a payment, but if you’ve already missed payments you should still get in touch.
Lenders will work with you to help find a solution. Possible options can include temporary payment arrangements or extending your mortgage term. Your lender will look at your individual situation and let you know what options are available to you.
You can also reach out to Money Helper or Step Change to get free, impartial advice on your financial situation. If you have other money worries on top of your mortgage payments, these are great independent organisations that can help you.
Finding other ways to save money
Although easier said than done, finding other ways to cut back on your spending to leave more room for your mortgage payments is also an option.
If you’re currently making other credit repayments, you may be able to consolidate more expensive borrowing, such as credit cards or overdrafts, into a lower cost loan.
This is because you may find that you’re either eligible for a debt consolidation loan with a lower APR than on your current credit products, or you can extend the term of the borrowing to lower the monthly repayments. By refinancing, you may find that you can save hundreds of pounds a month just by rearranging your finances. Just be aware that if you extend the borrowing term, you may pay back more in interest overall.
36.8% APR Representative (fixed)
Switching your utility providers
It’s always worth checking if you can find a cheaper deal on your energy, broadband or mobile phone bill. Prices are generally high on energy right now, but you may be able to negotiate a cheaper rate on your utilities by simply speaking to your current provider.
Claiming any benefits you’re entitled to
Did you know that around £15 million worth of benefits go unclaimed each year? From Council Tax Reduction to Child Benefit, you might find you’re eligible for extra support from the government. Check out our guide to 5 benefits you could be missing out on to learn more.
Better returns on savings accounts
In contrast to higher rates on borrowing, if you’ve got savings, you can potentially benefit from moving them to a savings account with a higher rate of interest.
Savings interest is paid tax-free. Basic-rate taxpayers can earn up to £1,000 a year tax-free and higher-rate taxpayers can earn up to £500 tax-free. This is your Personal Savings Allowance. To give you a general idea of how much you’d need in a savings account to exceed this limit at the current rates available, for a basic-rate taxpayer you’d need between £22,000 to £28,000 depending on the type of savings account.
However, it’s worth noting that interest earned on savings in a cash ISA is always tax-free and doesn’t count towards your Personal Savings Allowance. Your ISA Allowance for 2023/24 is £20,000. This means that you can put a maximum of £20,000 into an ISA this tax year, but this can be added to money put into an ISA in a previous tax year.
Choosing the right savings account
When choosing the right savings account, there are a few things you’ll want to consider before moving your money. These are:
- The rate of interest you’ll get
- How easily you can access your money
- The minimum and maximum amount you can put in
- Whether you need to regularly add to your account
- Whether the account offers any bonuses
All these factors will influence the type of account you choose. For instance, the best interest rate available might only be accessed through an account that requires you not to withdraw your money for two years. Depending on whether you’re planning on using your savings any time soon, this may or may not be a good option for you.
Higher cost of credit
Finally, aside from mortgages, rates on other forms of borrowing may also increase. If you already have a fixed-rate loan, the monthly repayments on this will remain the same.
However, if you’re planning on taking out a loan or credit card in the coming months, the rates available to you may be slightly higher than they were before. Therefore, the best way to keep the cost of your borrowing down is to track and improve your credit score.
To find out more about boosting your credit score, read our credit scores guide.
From increased mortgage payments to savings benefits, lots of us will soon be feeling the effects of the recent interest rate rise. If you’re worried about money, reach out to Money Helper who will be able to support you with your finances.