How will the interest rate rise affect you?

On Thursday 2 November, the Bank of England (BoE) voted by a majority of seven to two to increase interest rates by a small, but significant 0.25 per cent – the first rise in more than a decade.

Mark Carney, the Governor of the BoE, emphasised that the move was not the start of a sustained upward trend.

The rise should mean that millions of savers across the UK will become marginally better off, but this is not necessarily the case.

The Telegraph reported yesterday that Lloyds, the UK’s biggest bank, will not increase its interest saving rates for 22 million of its current account holders – because the accounts are not linked with the BoE’s base rate.

This is despite most banks announcing a rise in their tracker and variable rate mortgages.

Around 4.5 million people in the UK have homes attached to these types of loans, which follow the BoE’s base rate fluctuations. According to the BBC, yesterday’s rise will mean that a household which owes £89,000 will see rises of between £11 and £12 a month.

Mike O’Connor, Chief Executive of StepChange Debt Charity, estimated that one in 10 of its clients with a mortgage will end up with a deficit budget.

He added: “With incomes already squeezed, even having to pay £20 more on average per month on a mortgage after today’s rise could push people who are just holding on by their fingertips from paycheque to paycheque, into the red.”

New figures also show that households face paying as much as £465 million in additional costs on credit cards, overdrafts, personal loans, and car finance as a result of the rise.

Mike Cherry, national chairman of The Federation of Small Businesses, said: “Today’s rate rise will mean yet more cost pressures for small firms as they battle spiralling prices and flagging consumer demand.”

He said just one in 10 businesses apply for funding at present, and the rise could threaten investment, growth, and job creation.

Those nearing or are in pension age, however, should reap the benefits of yesterday’s news. Annuities – income for life which can be bought with your pension pot – follow the BoE’s interest rates, meaning a 65-year-old buying a joint annuity for £100,000 today will receive an annual income of £4,468. This is compared to last year, when the same pensioner would have received just £4,086 a year.