What is impacted by the interest rate?
Higher interest rates make borrowing money more expensive in the long run, reduces disposable income and therefore limits the growth in consumer spending, as explained below.
How are Mortgages affected by the interest rates?
If you are on a fixed rate payment, you can rest assured knowing your payment will not go up until the end of your fixed period. However, if your investment charges you a variable interest rate, you might find the cost of your monthly repayments go up.
Using a mortgage calculator to work out how your monthly payments might be affected can be helpful, but there can be miscalculations and confusion when it boils down to it.
If you are unable to keep up mortgage repayments, then your home may be repossessed.
Speak to one of our advisors about mortgages today >
How are Loans affected by interest rates?
Like mortgages, loans become more expensive with an increase in interest rates.
While loans typically are given with the intention of repayment occurring over a shorter period of time and tend to have higher interest rate. As a result of this you might have to take into account the extra monthly income needed to borrow money. This is potentially unrealistic and unaffordable.
How are Shares affected by interest rates?
Initially, share price goes down because businesses must incur more costs. But don’t panic, it is important to consider that while the share price might go down, it doesn’t necessarily affect your dividend long term.
How are Savings affected by interest rates?
Money held in savings accounts hasn’t grown much in previous years due to historically low interest rates. But with inflation now running high, your savings are at risk of losing value in ‘real’ terms as you’ll be able to buy less with your money. While the Bank of England’s attempt to bring inflation back down to a target of 2% may have a positive effect on your savings – as higher rates tend to filter through the economy – it also means that balancing the juggling act between saving and the cost of borrowing will become very delicate.
How are bonds affected by interest rates?
Most bonds pay a fixed interest rate that becomes more attractive if interest rates fall, driving up demand and the price of the bond. Conversely, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, resulting in a decline in its price.