How will the interest rate rise affect me?
The interest rate rise would mean bad news variable-rate mortgage holders.
The media is alive with speculation that a UK interest rate rise will occur soon. This has been fuelled by the comments of highly influential figures, including Mark Carney, Governor of the Bank of England, who last month stated that a rise was “drawing closer”.
On Monday, Kristin Forbes, another prominent policy maker on the Monetary Policy Committee, added to the speculation, arguing via a column in The Telegraph that “waiting too long [to raise interest rates] would risk undermining the recovery.”
Most analysts don’t expect rates to rise as quickly as in the past: the general consensus seems to be that the BoE base rate will reach 2.5 per cent by early 2017.
But we can be certain that rises are coming and with increasing numbers of key figures advocating a sooner-rather-than-later approach, savvy people will already be thinking about how they might be affected and planning ahead.
How does this affect me?
Homeowners on a variable interest rate will bear the brunt of any rise. For example, Mark Carney himself has already highlighted that an increase to 2.5% could add an average of more than £400 a month to the borrowing costs of London’s 900,000 mortgage holders. Renters are also likely to see an increase in their monthly payments as landlords pass on their increased costs.
The cost of consumer credit will increase with a rate rise, impacting most people with loans or credit cards. If your loan or credit card is on a variable rate then the BoE rise will likely lead to an increase in your APR. Average credit card debt in May 2015 per UK household was £2,311, so any increase could affect many.
What can I do now?
One of the most important things you can do to prepare for a rise is make sure you are on the best deal possible for any lines of credit you have.
That means taking action to actively improve your credit score, since lenders typically reserve the best deals for those with higher credit scores.
Look out for any errors on your report that may be dragging your score down and get them corrected. Then check out whether there are better deals on loans and credit cards you could be taking advantage of.
Now is also the time to take a good look at your overall financial situation and think about the difference an interest rate rise will make to your budget. The Money Advice Service has many more general tips that are also worth reading.