Interest rates go up for the first time in three years

Borrowers and people with a mortgage could face more financial pressure thanks to a rise in interest rates.

The Bank of England has increased interest rates for the first time since August 2023 from 3.75% to 4%.

An increase in the base rate had been widely expected, as inflation rose to 3.5% in the year to September 2026 - partly because of the impact of the Iran war.

And inflation is tipped to go up further in the next few months, following the 4% increase in the energy price cap in October.

But after months of the Bank of England taking a cautious approach to setting interest rates, today’s announcement will be a blow to those households already struggling with rising living costs.

How are interest rates linked to inflation?

The Bank of England can increase interest rates to try to keep inflation under control and close to its target of 2%.

That’s because the base rate directly influences the rates that are charged by lenders and high street banks on everything from mortgages and credit cards to loans and savings accounts.

So putting up the base rate can nudge people and businesses to save more and spend less, which, over time, can help slow price rises.

How do interest rates affect my mortgage?

Your payments will be directly linked to the Bank of England’s base rate if you’ve got a tracker or variable rate mortgage.

So when the base rate goes up, your payments go up too.

But bear in mind that mortgage lenders don’t just look at the base rate when they’re setting their own rates.

Other factors like risk appetite and market conditions will also be weighed up when they’re working out what to charge.

If you have a fixed-rate mortgage, you’re protected for now and won’t see any change until your deal comes to an end.

According to UK Finance, about 2.3m households will reach the end of their fixed rates next year. 

What if I have credit cards or loans?

An increase in interest rates can make borrowing more expensive if you have a credit card or a loan.

Remember though that lenders will often base the interest rates they charge on factors like your credit score and market conditions too.

So even if the base rate falls at some point, that doesn’t guarantee your repayments will come down too.

Could interest rates go up again?

Possibly.

Bank of England governor Andrew Bailey says today's decision "shouldn't be seen as the first in an inevitably long sequence of hikes".

However, he warns that this is unlikely to be the last increase "unless the conflict in the Middle East is resolved".

Help is available if you're struggling

If you're finding it hard to keep up with expenses like mortgage payments and loans, then it's always worth reaching out and asking for help.

We can help you:

• create a household budget
• deal with your debts
• find out what benefits you can claim