Interactive Investor

What 4% interest rates mean for your personal finances

2nd February 2023 12:34

Myron Jobson from interactive investor

The Bank of England has today upped interest rates for the 10th consecutive time.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The Bank of England followed the script by announcing the 10th consecutive rise in interest rates. This won’t come as a shock to those who follow financial news, but the pounds and pence impact on their personal finances could come as a surprise.

“Mortgage holders on a variable rate deal linked to the base rate are likely to see an immediate impact on their mortgage repayments at a time when many can least afford it amid rampant inflation. Those on fixed-rate deals are shielded from the rise for now, but they could be in for a nasty shock when they remortgage.”

To fix or not to fix?

Myron Jobson says: “Fix now or fix later is the dilemma facing those approaching the end of their fixed-rate mortgage deal in the coming months. Official figures show that almost 725,000 fixed-rate mortgage deals are coming to an end in the first half of this year. The conventional wisdom among economists is that with peak inflation hopefully behind us, there are only a couple of rate rises to come before ending as early as the middle of this year – but there are no guarantees.

“As such, those approaching the end of their mortgage deals could benefit from being proactive in seeking the best deals now to have more options on the table further down the line. All mortgage offers are valid for a fixed amount of time. Typically, they will last between three and six months, depending on the lender. You are not tied to mortgage contracts until you sign on the dotted lines, so you can ditch it if you find a better deal in the interim.”

Home repossession fears

“Mortgage possession actions and repossession are sadly picking up following the complete cessation of repossession proceedings during the height of the pandemic. Data from the Ministry of Justice revealed mortgage possession claims increased by 30% in Q3 last year compared to the same quarter in 2021 from 2,832 to 3,680, while repossessions by county court bailiffs increased by 91% from 390 to 744.

“History has shown that the uptick in home repossession typically coincide with increases to the base rate. While higher monthly repayments could lead to a rise in mortgage arrears, the current low level of unemployment could slow the rise in repossessions. However, with the cost of borrowinfg on the up, many homeowners struggling to repay their mortgage would be wary that something like a sudden illness or job loss could leave them homeless.

“The first port of call to prevent the repossession of your home is to speak to your lender and come to an agreement where you can continue payments instead of repossessing your home.”


Myron Jobson says: “Higher interest rates do not always translate to higher savings rates. It could take months for the increase in interest rates to trickle through to savers – if at all. The acceleration in the frequency of rate rises has meant that some savings providers may still be catching up to past base rate rises.

“Put simply, you may get a better savings rate in the near future – but there are no guarantees. The amount you are looking to save could guide your decision. An uptick in savings rates could mean the difference between pennies and hundreds of pounds depending on how much you have to save.”


Myron Jobson says: “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.”

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