Following five interest rate rises by the Bank of England in the past twelve months - and another on the way, according to economists - the financial climate is changing. While the cost of borrowing and spending goes up, savers will reap the benefits.
See how higher interest rates could affect your lifestyle and finances.
1. Borrowers hit
If you have a mortgage, or have borrowed money using a form of credit, you'll notice your monthly repayments going up. According to Credit Action, borrowing costs hit a six-year high in July 2007.
The effects are already being felt by those on variable mortgages - but the two million borrowers who will see their fixed rate mortgage deals expire over the next 18 months will need to budget at least an extra £100 a month to pay towards their mortgages.
2. Savers benefit
Savers will be feeling the positive effects of extra interest payments in their savings accounts. A survey conducted by credit experts Experian suggested that 31% of people will be tempted to save more as a result of higher interest rates.
3. Rising debt
Those already in debt will be susceptible to more serious financial problems following interest rate rises. Citizens Advice reported a 15% increase in the number of people approaching them with debt problems in January 2007 compared to January 2006 - that's 5,300 new debt cases a day.
That said, the Council of Mortgage Lenders believe that: "The vast majority of mortgage borrowers will continue to cope, even in a market where affordability is stretched. But anyone who thinks they may face difficulties should talk to their lender early to explore their options."
4. Saving, not splurging
Rising interest rates should encourage consumers to be more careful with money, and make them less likely to take on new forms of credit - if they can help it. Nearly half of those surveyed by Experian said they were less likely to apply for credit in a higher interest rate climate.
5. Cutting back on luxuries
With the cost of credit going up, consumers won't be spending as freely. Those surveyed said the first luxuries to go would be visits to pubs, clubs and restaurants. More expensive electrical equipment such as TVs and DVD players would also be left on the shelf.
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The vast majority of mortgage borrowers will continue to cope, even in a market where affordability is stretched. But anyone who thinks they may face difficulties should talk to their lender early to explore their options.
Council of Mortgage Lenders
Reaction to interest rate rises
- 34% believe their disposable income will significantly fall
- 31% will be encouraged to save more
- 17% may have to dip into savings
- 47% say they are less likely to apply for credit
- 36% plan to spend less time in pubs & restaurants
- 32% will delay home improvement projects
- 76% will not cut back on buying alcohol
Source: Experian survey
Keep your finances in check
One way to keep track of your finances is to check your credit report regularly. A credit report allows you to:
- Understand & manage your credit status
- Get unlimited online access to your credit report
- Order your National Credit Score
- Improve your credit rating
- Get freephone customer advice
Your comments (2)
david (Ashford), on 11/01/2008 at 09:44
You are absolutely right about the economics but do I detect an element of shadenfreude in your comments?
Peken (East Devon), on 22/09/2007 at 16:32
I am extremely pleased to see interest rates rise and what I hope is the beginning of a credit squeeze (some now call it a 'credit crunch'). The economic success, if you can call it that, is built on borrowing and consumers spending money they do not have. The irresponsible way banks and building societies have lent money to the public is nothing short of criminal. Northern Rock deserve all they have got and I am sorry to see that the Bank of England bailed them out.
The excessive lending has done nothing for the housing market since it has only fueled the over inflated prices we have today. The politicians, of all parties, are afraid to tell the people the truth. Unfortunately they and the general public will find out the hard way in the coming economic collapse and house price slump.
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