Published On: 15 August 2023

As the Bank of England continues its upward trajectory, raising interest rates for the 14th consecutive month, the financial landscape is evolving. With inflation persistently overshooting the target of two percent, the Monetary Policy Committee has embarked on this path to regain control. However, as these rate hikes unfold, they bring their own set of challenges for households already grappling with financial strains.


Impact on Mortgage Payments 
For those with variable rate mortgages, the repercussions of interest rate hikes are profound. Anticipated estimates from the Bank of England suggest that almost a million households could witness mortgage payments surging by a staggering £500 per month by the close of 2026. Additionally, over two million households might grapple with monthly increments ranging between £200 and £499. 

According to the Bank’s projections, households transitioning from fixed rate deals in the latter half of the year are poised to experience an average hike of £220 in their monthly repayments upon refinancing at current rates. The far-reaching implications of these escalating payments could lead to financial turmoil for some and significant budgetary constraints for others. 

Elevated Cost of Borrowing 
Interest rate escalations also bear consequences for borrowers, impacting credit card holders and those with personal loans. Effective management of repayments, particularly for high-interest debts, becomes paramount in this scenario. 

Diminished Disposable Income 
As mortgage payments inflate, disposable income dwindles. This phenomenon casts a broad shadow over everyday life, influencing essentials such as grocery expenditures and leisure activities. The ripple effect encompasses the larger economy: reduced consumer confidence curbs spending, leading to decreased business demand and custom. 

The Strain on Savings 
While higher interest rates may ostensibly favour savers, the reality is nuanced. Borrowing costs take precedence over savings, compelling individuals with debts to channel their funds towards repayment. As a result, potential interest gains on savings are foregone, potentially leaving individuals with a diminished savings pool down the line.  

Dipping into Reserves
Elevated interest rates push businesses to shift their increased costs onto consumers, raising the price of basic goods and services. This financial pressure prompts individuals to tap into their savings to meet essential household expenses. Statistics from KPMG underline this trend, revealing that a quarter of individuals are drawing on their savings to cover necessities, especially prevalent among 18 to 24-year-olds. 

Navigating the New Normal
With the far-reaching impact of rising interest rates, maintaining financial stability and achieving long-term goals necessitates strategic planning. Consulting a professional financial adviser is more crucial than ever. A knowledgeable adviser can assess your financial landscape objectively and offer tailored advice to suit your unique circumstances. 


As the financial landscape shifts, we’re here to help you stay on track. If you have questions about managing your finances amid these changes, don’t hesitate to reach out. Your financial goals remain within reach, even in this evolving economic climate. 




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