The Bank of England base rate influences the cost of borrowing and interest paid on savings. The cumulative rate changes will have a significant impact on many households. Just Credit Union have put together some hints and tips to help understand these impacts.
Impact of interest rates rise on borrowers
Mortgages and other forms of borrowing both secured and unsecured, are likely to be affected by the interest rate rise. This could include loans, credit cards and overdrafts. Most existing unsecured loan agreements such as a personal loan won’t usually be affected by the interest rate change. This is because you agreed to a fixed rate of interest when you took out the loan. Interest rate on your credit card or overdraft could rise your provider should give you notice before this happens. If you are looking to take out a personal loan after the interest rate rise, you are likely to find that for most lenders the cost of new loans has increased.
Will Just Credit Union change its interest rates?
No! Because of the unique way credit unions are funded Just Credit Union will not be increasing the rates on existing loans or on future borrowing. Just Credit Union is about people in our community helping other people in the same community. What people save with us is what we lend. The interest paid on the loans pays to run the credit union and not increase the profits of national or international corporation.ÂÂ
Impact of interest rates rise on mortgages
Homeowners with mortgages are likely to take the biggest hit. Almost two million people on variable and tracker rates will see their monthly bills rise as a result. Those on fixed rates mortgages are protected for the moment but they are likely to see a large increase in the rates when their fixed rate ends resulting in a large jump in their monthly repayments. When, and if, your mortgage repayments are affected by the interest rate change will depend on your type of mortgage and when your current deal ends.
If you have a variable rate tracker mortgage, linked to the BoE base rate you are likely to see an immediate impact on your mortgage repayments. Those on a standard variable rate mortgage will probably see an increase in their rate in line with the interest rate rise. People with fixed rate mortgages are likely to be affected once they reach the end of their current deal. An interest rate rise is likely to make re-mortgaging at that point more expensive.
Have a financial plan in place
It’s a good idea to have a financial plan in place to deal with any potential interest rate changes. As a rule of thumb for each 1% the mortgage rate increases repayments will increase by roughly £50 for every £100,000 borrowed. The base rate has increase from 0.1% November 2021 to 3% in November 2022. With  an average mortgage being around £150,000 many people may see their repayments increase by around £200 per month. The market is predicting that the Bank of England base rate could rise above 4% by the end of 2022 and as high as 5.5% by July 2023. People are advised to build these market expectations into their financial planning.
Seven tips for managing an interest rate rise on your mortgage
 1. Find out what mortgage you’re on
How you’ll be affected by the interest rate rise depends on what mortgage you’re on and when your deal comes to an end. If you don’t know, check your paperwork or with your mortgage provider to find out.
2. Work out how an interest rate rise will affect you
Now you know what mortgage you’re on, you will have a good idea when your mortgage rate may change and by how much. You can use Money Saving Expert’s mortgage calculator to work out how much your repayment may change for different changes in the borrowing rate.
3. Work out what you can afford
Create a budget and see if there are any areas you might be able to cut back. If the increases are likely to be in the future, then start building up a savings buffer now by opening a Just Credit Union Savings Account.
4. If you’re worried about how to afford this
You don’t have to be in debt to seek help. A debt adviser can help you budget and assess your income/expenditure early before you get into any financial difficulty. Use the Money Helpers debt advice locator tool to find impartial free debt advice.
5. Build up your credit score
Improving your credit score will help you get a better deal when your deal comes to an end, or you remortgage.
6. Make sure you’re on the best deal
If your current deal is coming to an end you should shop around there are several comparison sites that can help.
7. Overpay your mortgage
If it is going to be a while before an interest rate rise will hit you, if you can, take advantage of your currently low rate you have and pay extra. There may be limits on how much you can overpay and there might also be charges, so you should check with your mortgage provider first.
