London Daily

Focus on the big picture.
Friday, Apr 03, 2026

How would an interest rate rise affect you?

How would an interest rate rise affect you?

Everyone in the UK will be affected by rising prices - from a higher gas bill, to harder choices during the grocery shop.

The idea of raising interest rates is to keep those current and predicted price rises, measured by the rate of inflation, under control.

Higher interest rates make borrowing more expensive. For households, that could mean higher mortgage costs, although - for the vast majority of homeowners - the impact is not immediate, and some will escape it entirely.

Analysts are also warning that the potential benefit of a better return on savings could be muted.

Homeowner impact


Even before any decision is made by the Bank of England's rate-setting Monetary Policy Committee, there are signs that the era of ultra-low mortgage rates is at an end.

Some lenders have already started to raise rates for those applying for a new home loan.

It has been an extraordinary period of cheap mortgages, and - in the last few months - there have even been good deals for first-time buyers unable to offer much of a deposit.

Brokers are expecting any rises in mortgage rates to be "slow and measured", which would mean mortgages would stay cheap by historical standards for some time.


It is a little-discussed fact that only about a third of adults have a mortgage.

About a third rent their home, another third have either never had a mortgage or have paid it off. Those figures come from the English Housing Survey, which is geographically limited, but one of the most comprehensive guides available.

Some 74% of mortgage holders in the UK are on fixed-rate deals, so would only see a change in their repayments when their current term ends, according to banking trade body UK Finance.

Of the remainder, 850,000 homeowners are on tracker deals, and the other 1.1 million are on standard variable rates (SVRs). They are the people likely to feel an immediate impact were the Bank rate to rise.

If their rates mirrored a Bank rate rise to 0.25% from its current level of 0.1%, then a typical tracker mortgage customer's monthly repayment would go up by £15.45. The typical SVR customer would be paying £9.58 more a month, UK Finance figures show.

If there were a much bigger Bank rate rise to 1%, and lenders raised their rates by the equivalent amount, then the average tracker customer would pay £93 a month more, and the typical SVR customer would pay £57 a month more.

That would be a further squeeze on their household budget at a time when people have been used to years of cheap borrowing and relatively slow-rising prices.

Every mortgage applicant since 2014 would have needed to prove in stress test that they can pay at a rate of about 6% or 7% - the idea being that a small rate rise may be uncomfortable, but not unmanageable, for homeowners.

Katie Brain, from independent analysts Defaqto, says rates "had to start going back up at some point" but reminds anyone looking for a mortgage that any benefits of a low-rate deal could be wiped out if the applicant ignores expensive fees.

Time to save?


A collective sigh of relief would be heard from savers were interest rates to rise, but it could quickly be followed by a sharp intake of breath.

Analysts warn that, even if the Bank rate rises, there is no guarantee of that being reflected in better returns on savings.


Savers are often borrowers too, but the money in the bank has effectively been falling in value for some time.

Anna Bowes, of website Savings Champion, says that rates have been falling in the last year, even though the Bank of England's base rate was unchanged.

People are receiving pennies in interest for every £100 they keep in savings for a year. A Bank rate rise will do little to change that scenario.

The average interest rate for an easy-access account you can open today is 0.14%. For easy-access accounts closed to new customers, it is 0.22%.

The highest paying easy-access account has an interest rate of 0.66%.

Sarah Coles, from investment firm Hargreaves Lansdown, says many savers have switched off from paying much attention to their returns.

"When we asked people whether they knew what they were earning on their savings, two in five admitted they had no idea," she says.

"Even those who think they have a handle on their savings may well be off the mark. When we asked people what they were making on their easy access savings, most of them wildly overestimated."

Comments

Ken 4 year ago
20% interest is what it should be and i hope it goes there soon.

Newsletter

Related Articles

0:00
0:00
Close
Trump’s Strategic Pressure on UK Seen as Push for Stronger Alignment and Fairer Terms
UK Focuses on Trade Finance to Secure Critical Materials for Defence and Energy Sectors
Majority of UK Businesses Hit by Middle East Conflict While Confidence Holds Firm
UK Royal Navy Faces Renewed Scrutiny as Debate Intensifies Over Capability and Readiness
Reform UK Faces Mounting Distractions as Policy Agenda Struggles to Gain Traction
Investigation Launched Into Northern Cyprus IVF Clinics After UK Families Receive Incorrect Sperm
International Meeting Issues Unified Call to Safeguard Navigation Through Strait of Hormuz
Potential Strait of Hormuz Closure Raises Concerns Over UK Food and Medicine Supply Chains
UK Leads Coalition of Over Forty Nations Urging Iran to Reopen Strait of Hormuz
UK Secures Tariff-Free Access for Medicines in Landmark US Pharma Trade Agreement
King Charles III Invited to Address Joint Session of U.S. Congress in Rare Diplomatic Honor
Debate Grows Over Whether Expanded North Sea Drilling Can Reduce UK Energy Bills
UK Faces Heightened Risk of Jet Fuel Shortages, Airline Chief Warns
UK Ends Police Investigations into Lawful Social Media Posts After Review Finds Overreach
Abramovich Moves to Establish Charity for Frozen Chelsea Sale Proceeds Amid UK Dispute
Starmer Reaffirms NATO Commitment While Responding to Trump’s Strategic Critique
UK Aid Reductions Raise Fears of Severe Human Impact Across Parts of Africa
UK Signals Renewed Push for EU Cooperation as Iran Conflict Reshapes Security Landscape
Bank of England Signals Caution as Bailey Advises Markets Against Expecting Rate Hikes
UK to Convene Global Coalition to Restore Shipping Through Strait of Hormuz
Trump Signals Possible NATO Reassessment, Emphasizes Stronger U.S. Strategic Autonomy
Australia Joins British-Led Efforts to Reopen Strait of Hormuz Amid Escalating Tensions
King Charles Plans US State Visit as UK Strengthens Ties with Trump Leadership
UK Regulator Launches Investigation Into Microsoft’s Business Software Practices
Kanye West Set for High-Profile Return to UK Stage at Wireless Festival
Trump Presses Europe to Strengthen Commitment as Iran Conflict Escalates
UK to Deploy Additional Troops to Middle East Amid Rising Regional Tensions
UK Authorities Face Claims of Heavy-Handed Measures in Monitoring Released Pro-Palestine Activists
Trump Calls on UK to Secure Its Own Energy as Iran Conflict Intensifies
Nigel Farage Declines Invitation to UK Conservative Conference Led by Liz Truss
Trump Warns Allies to Take Responsibility as Rift Deepens with UK and France Over Iran Conflict
How Britain’s Prime Minister Controls U.S. Bomber Access in Escalating Iran Conflict
Trump Urges Allies to Secure Their Own Oil Supplies as Hormuz Crisis Disrupts Global Energy
Russia Expels British Diplomat as UK Pushes Back Against Pressure
White House App Faces Scrutiny After Claims of Continuous User Location Tracking
BBC Faces Scrutiny Over Allegations of Paid Content Linked to Saudi Arabia
UK-France Coastal Patrol Agreement Nears Breakdown Amid Migration Pressures
UK Police Detain Pro-Palestine Activist Again Weeks After Bail Release
FTSE 100 Advances as Energy and Mining Shares Gain Amid Middle East Tensions
Eli Lilly Seeks UK Pricing Deal to Unlock Renewed Pharmaceutical Investment
Three Arrested in UK After Massive Cocaine Haul Discovered Hidden in Banana Shipment
UK Fuel Prices Poised for Further Surge Amid Global Energy Pressures
Apple Subsidiary Penalized by UK Authorities for Breach of Moscow Sanctions
Western Allies Intensify Coordinated Sanctions Strategy Against Russia
UK Lawmakers Face Criticism Over Renewed Push for Social Media Restrictions
Starmer Signals UK Crackdown on Addictive Social Media Features
Rising Costs Push One in Five UK Hospitality Businesses to the Brink of Closure
Man Arrested on Suspicion of Attempted Murder After Car Strikes Pedestrians in UK, Injuring Seven
Escalating Conflict Involving Iran Tightens Fiscal Pressures and Highlights UK Economic Vulnerabilities
UK Moves to Confront Russian ‘Shadow Fleet’ Operating in Its Waters
×