The Bank of England has announced that interest rates will remain at 4.75%. Despite inflation of 2.5%1 the Bank has left rates unchanged for the second month since they rose by a quarter point in August. What does this decision mean for the ordinary person on the street?
For people with mortgages linked to the interest rate, variable rate mortgages, this is good news as it keeps the interest on repayments lower than if the Bank had raised rates. Find more information on mortgages now.
For people with savings the news is less good as a rise in interest rates would have seen those savings likely to grow at a slightly faster rate with more interest being paid on them. Find more information on savings now.
Despite no changes being made this month it is important to be thinking ahead. It’s currently expected that there will have to be a future rise in rates to curb inflation and retain control of the housing market, which has seen steep rises in prices. It could well be the case that interest rates rise to 5% in November. This should be considered when thinking through any financial decisions.
A possible rise in rates has particular impact when thinking about borrowing for a mortgage. A variable rate mortgage is likely to see the amount you have to pay increase rather than fall in the future. This makes a fixed rate or capped rate mortgage a more inviting prospect.
There is also an incentive to save when the returns are more likely to go up although you should always try to make sure to keep some money aside in savings, whatever the situation.
More detailed advice on responding to interest rates can be found on the BBC website here.
Tip: Try the MoneyBasics mortgage calculator to obtain an approximate figure of the amount you can afford to borrow and how much your monthly repayments would be.
Tip: Try the MoneyBasics budgeting tool to help you reach your savings goals.