Bank of England rate rise squeezes mortgages, cards and family budgets

The Bank of England just made borrowing more expensive, lifting interest rates by a quarter of a percentage point on Thursday. It was the first increase in more than three years, aimed at containing inflation tied to the Iran war. Experts say more hikes could follow over the next 18 months.

The BBC reports that for the roughly 1.3 million Britons on variable-rate mortgages, the change bites quickly. Peter Gill, a 48-year-old tiling business owner in Halifax, says his monthly repayments will rise by about £45. He worries they could climb further, but he thinks switching to a fixed deal would cost him more right now.

Fixed-rate borrowers are not immune either. David Hollingworth of broker L&C Mortgages says fixed deals have already climbed as markets anticipated rate rises to fight inflation, and many people will be shocked by how much higher they are than five years ago. Dawn Fazackerley-King, a Pilates instructor near Ipswich, is about to refix after a five-year deal at 1.4%. The best two-year deal she can find is 5.69%, adding about £200 to her monthly costs.

Dawn and her husband have a joint income of about £70,000 and both work full time. She says they have already gone through their direct debits and found little left to cut, with no room to take on more work. Their housing costs are unchanged, she says, but the extra several hundred pounds a month buys them nothing extra.

Credit-card and loan borrowers face another squeeze. Ben Thomas, 41, from Shropshire, retrained as a paramedic after a mental health crisis during the Covid pandemic and now carries £52,000 of debt. He has paused interest on most of it, but about £2,000 of credit-card debt is still accruing charges, and he worries repayments will rise. StepChange's Simon Trevethick says the charity has seen a 20% rise in people asking for support this year and warns of tougher times if higher borrowing costs feed into household budgets.