Economic uncertainty across the world, the rising cost of living and the rapid increase in inflation have greatly affected interest rates in the UK.

According to the latest reports, the Bank of England (BoE) has recently increased the base rate from 1.75% to 2.25%.

This decision has almost immediately influenced mortgage pricing across the country, which has had knock-on impacts in many other ways. Furthermore, with a recent nose-dive in the value of the pound, and reports of the Bank of England estimating subsequent rises in the near future, the UK is left in a difficult financial position.

Today, we're helping you understand how the increasing interest rates might affect you and what you can do about it.

Here we go!

Why Are Interest Rates Increasing?

One of the most common reasons for the Bank of England increasing interest rates is to attempt to bring down, balance and control inflation.

Whilst there are other triggers influencing interest rate rises, most of them circle back to the management of inflation.

Let’s talk about a few usual scenarios where an increase in interest rates is intended to help the country.

Economic growth: When the economy grows, it promotes an increase in demand and consumption. However, as the demand increases, sometimes the suppliers are not able to produce enough to meet this demand. 

As a result, the price of goods and services increases, causing inflation. Hence, when economic growth is accelerated, an increase in interest rates helps encourage savings and control inflation. Increased employment rates: When more people are employed and have job stability, they take out more mortgages, which may cause an increase in home prices. This can cause an increase in inflation across the country.

To manage this, an increase in mortgage rates discourages people from taking home loans, while also decreasing liquidity in the market due to higher interest rates. Consequently, reducing inflation.

Currency decline: A decline in the exchange rate can be a problem for the country as this makes imports more expensive and exports less profitable.

To tackle this problem, the BoE may decide to increase the interest rates in an attempt to encourage investors to save money in British banks. This can in turn strengthen the currency and help the economy to stabilise.

How The Increasing Interest Rates Personally Affect You

Now, of course, as an individual earning a living in the UK, the bigger picture is probably not your immediate concern. You want to know how these increasing interest rates are affecting you and your personal finances.

Let us find out together how the interest rate rise might impact you personally.

1. Cost of Borrowing

Increased interest rates can increase the cost of borrowing. This may discourage people from taking out loans due to a higher interest rate. 

However, if you still need to borrow, remember that Salad Money always has your back. With our More Than Your Score Loans, we are always aiming to provide you with fair loans at the best interest rates without using your credit score in our initial lending decision. To learn more, get in touch with us now!

2. Return on Savings

Increased interest rates mean that you can earn more interest on savings or certain investments, in comparison to before. This helps reduce liquidity in the market and puts your money to work for you.

3. Mortgage Interest Rates

As the interest rates increase, mortgage rates will soar, making it more expensive to take out a mortgage.

This could cause an increase in your current mortgage payments and significantly affect your purchasing power. 

4. Possible Increase in Taxes

Increased interest rates also mean more interest payments on government debt, which can later lead to higher taxes in the future.

5. Small Businesses

Small businesses that largely function on borrowed money might face extra expenses and possible losses due to increased debt repayments. Thus further affecting their ability to attract potential investors and customers alike.

Choose Salad Money For Fair and Affordable Personal Loans

Now that you know all about the increasing interest rates and how they may impact your personal finances, it’s time you plan your next step.

However, in the midst of the cost of living crisis and expected economic climate, you can rest assured that Salad Money is always here for you.

Our fair affordability assessment system aims to provide you with low credit personal loans at the best interest rates.

Applying for one of our new loans doesn’t impact your credit score. We use Open Banking in our initial assessment. If successful, we report your loan to the CRA’s (Credit Reference Agencies). Your credit score won’t hold you back from being eligible.

For more financial tips and information, visit our blog page and for more queries regarding our services, contact us now!