London Daily

Focus on the big picture.
Sunday, Aug 02, 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 5 year ago
20% interest is what it should be and i hope it goes there soon.

Newsletter

Related Articles

0:00
0:00
Close
Finland Deploys Commercial-Scale Thermal Batteries Using Crushed Rock to Store Renewable Grid Energy
Valued at $109 Million: F-35B Fighter Jet Crashes in Southern California
Sainsbury Agrees to Sell Argos in £120 Million Deal to Private Consortium
High Court Clears Way for Construction of Chinese Embassy at Royal Mint Court
UK Fuel Prices Climb to Multi-Month Highs as Strait of Hormuz Tensions Disrupt Oil Supplies
Severe Summer Drought and Record Heat Put UK Harvests at Risk
Prime Minister Andy Burnham Faces Labour Backbench Opposition Over Potential Support for New North Sea Oil and Gas Drilling
Bank of England Warns Inflation Will Stay Above 3% as Middle East Energy Shock Prolongs Cost-of-Living Pressures
Andy Burnham has Announces Plans to Redistribute Income Tax Revenue to English Mayors
Early-Release Scheme Faces Fresh Scrutiny as Reoffending and Prison Recalls Rise
Police Phone Checks Followed Report on Murder of MI5 Agent Inside Sinn Féin
Archbishop of Canterbury Reaffirms £100 Million Reparative Justice Fund During Ghana Visit
Charities Allege French Police Used Tear Gas Against Channel Migrants
Norwegian Teenager Convicted Over Iran-Linked Murder Plot in Britain
Christian Organisations File Charity Complaints Against Amnesty International UK
Ofgem Tightens Grid Connection Rules for New Data Centres
FTSE 100 Reaches Record High Despite Global Technology Sell-Off
Millions of UK Households Urged to Check Eligibility for Winter Energy Discount
Labour Restores Parliamentary Whips to Diane Abbott and Joani Reid
UK Supreme Court to Hear Challenge Over Palestine Action Ban
UK Commits More Than £8.4 Billion to Dreadnought Nuclear Submarine Programme
England Declares Severe Drought as Wildfire Burns Near Sizewell Nuclear Site
Bank of England Holds Interest Rates at 3.75% as Middle East Tensions Fuel Inflation Risks
Drought Status Extended Across All of Wales as Heat and Dry Weather Deepen Environmental Strain
Record-Low Danube Exposes Probable Mammoth Remains in Bulgaria
UK Business Confidence Climbs to Four-Month High
Greater Manchester Gains Expanded Powers Under Regional Funding Reforms
UK Supreme Court to Hear Appeal Over Palestine Action Terror Ban
Shell's Quarterly Profit Doubles to Nearly $10 Billion on Higher Energy Prices
UK Government Removes VAT From Household Electricity Bills
Exceptional Drought Grips Half of England as Wildfire Threatens Sizewell
Bank of England Holds Interest Rates at 3.75% as Inflation Risks Persist
US Says It Has Carried Out Heavy Strikes on Iran After Attempted Attacks on Its Forces
The chief executive of the popular gaming company laid off many employees and his pay rose to 38 million dollars
UK Employment Holds Steady as Wage Growth Remains Moderate
England to Introduce Artificial Intelligence into Secondary School Curriculum
Wales Launches £1.2 Billion Industrial Regeneration Programme
High Court Upholds UK Digital Surveillance Framework
Northern Ireland Reaches Budget Agreement on Infrastructure and Public Sector Pay
Home Office Expands Digital Border Checks Nationwide
UK Approves Major North Sea Wind and Carbon Capture Project
The World's Most Terrifying Smartphone: Recording, Documenting, and Reporting to the Regime
Scotland Approves Major Renewable Energy Expansion
UK and United States Sign AI and Semiconductor Cooperation Pact
UK Treasury Tightens Fiscal Controls After Gilt Market Volatility
Bank of England Holds Interest Rates at 4.5%
UK Unveils £10 Billion NHS Funding Overhaul and Workforce Reform
The AI User Nightmare: Private Claude Conversations Leaked to the Internet
UK: Former Football Association Leaders Call for World Cup Boycott Over FIFA Privatization Plan
Forbidden Love: China severs millions from their virtual partners
×