Bank of England rate rise pushes mortgage costs up
The Bank of England's first rate rise in over three years is pushing up mortgage and borrowing costs for some UK households.
At a glance
- The Bank of England raised interest rates for the first time in over three years.
- The increase means mortgages, credit cards and personal loans could become more expensive.
- One borrower with a variable rate mortgage faces about £45 more per month.
The Bank of England raised interest rates on Thursday, its first increase in more than three years, as it tries to control inflation linked to the Iran war. The change means higher borrowing costs for UK households, and it could make mortgages, credit cards and personal loans more expensive for millions of people.
The BBC spoke to three people about how rising rates may affect them. Peter Gill, 48, runs a small tiling business in Halifax and is among about 1.3 million Britons on a variable rate mortgage. After Thursday's quarter point increase, his monthly repayments are expected to rise by about £45, and he is worried they could climb further. He said it would probably be more expensive to move to a fixed rate deal, so he plans to stay on his current deal.
His higher mortgage costs come as the cost of everything is going up, he said. His household income is about £45,000, and he has to pay staff more because of the national minimum wage increase. Raw material costs have also risen because of the war in Iran. At home, food, gas and electricity bills have increased, and he said he works about six and a half days a week to shield his family.
Dawn Fazackerley-King, a Pilates instructor near Ipswich, was on a five year fixed deal at 1.4 per cent. She is about to fix for two years, but the best deal available has a rate of 5.69 per cent. That will push her costs up by about £200 a month. She and her husband have a joint income of about £70,000 and have already reviewed their direct debits, with no more obvious savings to find. They cannot take on extra work because both work full time.
Ben Thomas, 41, from Shropshire, left his career as a chartered accountant during the pandemic and became a paramedic. He now has about £52,000 in debt and previously agreed to pause interest on most of it, though charges remain on about £2,000 of credit card debt.
Simon Trevethick, from the debt charity Stepchange, said support requests have increased by 20 per cent this year. He warned that higher borrowing costs could lead to further pressure on households.
Source: BBC Business.
Questions and answers
- How will rising interest rates affect mortgages in the UK?
- The Bank of England increased rates, and higher rates can raise mortgage costs. The BBC said one variable rate borrower could see about £45 more per month.
- Why did the Bank of England raise interest rates?
- It was trying to get a grip on rising inflation linked to the Iran war.
- How much could Dawn Fazackerley-King's mortgage cost increase?
- About £200 a month when she refixed at a higher rate.
