- Published
Interest rates have been raised for the first time in more than three years - and it could be good and bad news for you.
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it → publish → you
Here are three ways the increase to 4% from 3.75% could affect you.
1.
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increase → affect → you
Jobs and pay
Rate-setters at the Bank make changes to interest rates to fulfil their role of keeping price rises at a steady level.
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setters → make → level
Higher rates are meant to encourage people to spend less, reducing demand for goods and services and limiting price rises.
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rates → mean → rises
This impacts businesses in two ways - less money to spend among their customers may mean they sell less, but also the cost of borrowing to invest as a company goes up.
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cost → impact → company
Many businesses, particularly small ones, have variable rate loans which are influenced by the Bank rate.
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which → have → rate
Firms say higher rates limit their ability to offer new jobs and wage rises.
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rates → say → jobs
Mitchell Barnes, founder and chief executive of Ryse 3D, which manufactures 3D parts for the defence and automotive sectors, said the "reality" of rising interest rates was to look at the cost of employees and people.
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reality → manufacture → employees
That could include greater use of robots rather than workers.
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That → include → workers
"It's going to cause issues with, I suppose, employment across all sectors for people," he said.
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he → go → people
"You're going to see reduced employment, more automation, more robotics being put into facilities, just in order to increase efficiency and make that money go further."
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money → go → efficiency
2. Boost to savings
The Bank rate - and where it is expected to go in future - has a significant impact on the interest rates customers are offered on savings products.
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customers → expect → products
So, if you're saving up for something quite expensive, like a holiday, or very expensive, like a home, then a rate rise could be good news.
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rise → save → home
The answer then and now, according to experts, is to make sure you move your savings to benefit from the best possible rates.
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you → accord → rates
Leaving your savings in an old account (a product not offered to new customers), rather than shopping around, can mean you are penalised for your loyalty.
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you → leave → loyalty
"Savers have endured years of unrewarded loyalty, with those leaving [a £20,000 cash pot] in closed accounts losing out on an extra £139 over the past three years compared to on-sale easy access accounts," said Rachel Springall, from financial information service Moneyfacts.
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Springall → endure → Moneyfacts
She also said locking away your money for longer, with a fixed-term deal, is usually more lucrative.
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locking → say → deal
The other flipside is that renting while you save could get more expensive, because a rising Bank rate may well increase costs for landlords.
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rate → rent → landlords
3. Mortgages and loans
The big losers from a rate rise are those who borrow money, and specifically those on variable rate mortgages.
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who → borrow → mortgages
About 500,000 homeowners have a mortgage that "tracks" the Bank of England's rate.
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that → have → rate
Any rise in the Bank rate means an increase in the monthly repayments on their outstanding loan.
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rise → mean → loan
For a typical loan, the cost is going up by about £31 a month now the Bank has raised the base rate, but it depends on the size of people's loans.
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it → go → loans
An additional 500,000 homeowners on standard variable rates (SVRs) must wait to see if their lender chooses to pass on any Bank rate rise.
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lender → wait → rise
Typically, this would mean a £14 increase per month in repayments for a 0.25 percentage points rates rise.
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this → mean → rise
If you, like 87% of mortgage-holders, have a fixed-rate deal, then the payments will stay the same until the end of your current deal, which is usually two or five years.
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which → have → deal
While monthly payments are not immediately affected by a rate change, future deals are.
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deals → affect → change
Lenders had already "priced in" the latest rate rise when quoting new deals.
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Lenders → price → deals
Expectations for the Bank rate into next year are crucial on what they offer next.
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they → offer → what
The average rate on fixed deals are much higher now than was predicted at the start of the year.
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rate → fix → year
It means those remortgaging, possibly after the post-Covid boom in the housing market, are facing the prospect of higher mortgage payments.
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those → mean → payments
Some people have been choosing to move onto tracker deals instead, taking a view - including some risk - of the Bank rate not moving towards a series of further hikes.
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rate → choose → hikes
The Aporia
