Interest rate hold on the cards as past hikes filter through to finances

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Bank of England policymakers are tipped to hold interest rates again when they meet on Thursday following further signs that higher rates are gradually doing their job. Inflation is falling, the labour market isn’t as robust, with unemployment ticking higher, and UK economic growth has proved sluggish in recent months.

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“Policymakers continue to face a fine balancing act between driving inflation down and risk of deepening the economic slump. While interest rates might not budge this time around, the impact of past rate hikes continues to filter through to personal finances. With interest rates appearing set to stay at elevated levels for some time to bring down underlying inflation, it is important to understand the impact on your finances and make the necessary adjustments to maintain financial resilience.

Mortgages

“A hold in interest rate would come as good news for the 2.2 million homeowners on variable rate mortgages who have endured a swashbuckling ride during the cycle of 14 consecutive interest rate hikes, which saw their monthly repayment obligations balloon. It would mean that their interest payments will remain stable, which can be a relief.

“A hold in the Bank of England’s benchmark rate could also bode well for those in market for a mortgage. Lenders have steadily reduced rates on their fixed mortgage deals since July in the wake of an improved inflation outlook. But substantial falls in gilt yields, a benchmark for pricing fixed-rate mortgages, would be needed before we can expect any significant cuts in mortgage rates. As such, any further fixed mortgage rate cuts could be modest for now.

Savers

“Those who have been waiting to nab a top savings deal might want to get a move on as the very best deals may not be around for much longer. The withdrawal of NS&I’s market-leading one year fixed-rate savings accounts at the start of October is a good case in point.

“Those who can afford to put money away for at least five years or more should consider investing for the potential of long-term inflation-beating returns that far outstrip savings rates.

“While past performance is not indicative of future results, savers can take courage in the fact that history shows that even a ‘middle of the pack’ fund is likely to outperform returns from cash savings interest over the long term - so, you don’t need to be an expert stock picker to benefit. The key is to give your money ample time in the market – at least five years - to smooth out the effects of stock market ups and downs.

Borrowing

“Common borrowing arrangements such as a personal loan or car financing won’t usually be affected by changes to interest rates because a fixed rate of interest is typically agreed before the loan is taken out. However, the rate of interest applied to credit cards and overdrafts could go up - even though they are not directly linked to the Bank of England base rate.

“Those with high levels of debt should consider what they can do now to reduce their debts as the cost of credit is rising just as the prices of everyday essentials are flying. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all your options.”