Interest rates: How will you be affected?

The Bank of England has raised UK interest rates by a quarter percentage point to 4.25%.

The move had been widely expected by economists as a bid to cool the UK's economy.

Recent figures have shown that UK consumers are still borrowing and spending enthusiastically and the country's manufacturing sector is picking up despite the strength of sterling.

Should the Bank of England have raised interest rates? How will this affect you?

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The following comments reflect the balance of opinion we have received so far:

When I bought my first house two years ago, I was getting offers from all sides from all banks for profane amounts of money. I decided to buy at a price where I could handle at least 5% increase in interest rates. Anyone who buys at a low interest rate and stretches themselves to a limit, not taking into account any interest rate increase, deserves to lose their investment. The bank that lent them the money deserves to lose their money as well.
Dave Jackson, Wokingham, UK

To reduce house prices back to the levels of even ten years ago would require interest rates to double or even triple from their current levels Martin, Sheffield

Interest rates are a very blunt policy instrument. I was under the impression that the governments main objective was to keep inflation low (which it is), unemployment low (which it is) and the economy growing (which it is).

Cranking up interest rates damages the most productive sectors of the economy whilst doing little to curb consumer borrowing unless they are raised to vastly higher levels than they are now, which would have a catastrophic effect on industry. It should really come as no great surprise that when the average cost of mortgage borrowing halves, then house prices double - the supply of property is essentially static, and people can simply afford to borrow more therefore pushing the price up. To reduce house prices back to the levels of even ten years ago would require interest rates to double or even triple from their current levels - would such a course of action be desirable from an economic point of view or a political one?
Martin, Sheffield, UK

Hmm, it's funny that all those praising this new interest rate rise are the ones who are waiting around for a house price crash. I've just bought my first home and have budgeted carefully in order to pay my mortgage. It is very unfair for the government to penalise first time buyers when they should be targeting those who are about to by second and third homes with mortgages.
Claire, UK

It strikes me as a little late. Surely they should have seen that if rates were dropped so much, people would borrow a little more. And to now raise them, just hurts everyone. Raising interest rates won't stop house price rises, it'll just stop many first time buyers from buying, leaving landlords to buy the properties with a captive market.
Phil, Oxon, UK

Don't have a mortgage. Can't afford one and refuse to borrow more than six times my wage. House prices are decided by estate agents and people who agree to pay the ridiculously high sums. Just say no! If you do borrow above and beyond your means, remember there are plenty of us out here ready to snap up your house when you're repossessed. Doesn't anyone remember the 80s?
Louise, UK

I got my mortgage on a five year fixed rate, two years ago. As it was my first time away from home I wanted to be able to budget properly and give myself five years to get to a point where a massive rise in interest rates won't affect me too much. However, I have been brought up to think like this as my dad was a bank manager - don't gamble if you can't afford to lose. Anything affected by the interest rate is a gamble.
Sandy, UK

It is simply unfair that a whole section of society cannot afford to buy a home Tom, London

These small interest rate rises are unlikely to have any real impact on what should be considered as the UK housing crisis. Legislation is required to massively reduce the number of existing home owners leveraging their capital to make but-to-let investments. It is simply unfair that a whole section of society cannot afford to buy a home. When will someone stand-up and say this?
Tom, London, UK

Only buy a house where you can afford the repayments if the interest rates rise to maybe 8%. The further interest rates rise, the more smug I feel, safe with my easy repayments on my five-year fixed rate, with my house worth £30,000 more than it was when I bought it two years ago.
Sarah, Reading, UK

Good! Put the rates up, spark a crash hitting those who have spent so foolishly and then I can buy a second house to rent out!
Steve, Ipswich, UK

Thankfully I borrowed well below my maximum level against my mortgage advisors "borrow right up to your maximum limit" advice so any rises wont cause a big problem, however those that borrowed beyond their means may be feeling a bit hot under the collar just now..
Paul Main, Belfast

It appears to me that The Bank of England Committee waits till everyone has over stretched themselves and then thinks "let's increase interest rates to slow down the growth in the housing market". Shut the gate after the horse has bolted - why don't you. And then they wonder why the number of repossessions go up!
Fran, Exeter, Devon

Stop punishing those of us who do not have credit card debt Rachael, Northants

There is a simple solution. People should not be able to borrow endlessly what they cannot afford to pay back in the short term. Credit card companies should have much lower credit limits, however people should not be stupid enough to think that they don't have to pay their 'loans' back. Stop punishing those of us who do not have credit card debt to pay for those that do.
Rachael, Northants

Ahem - to all those people who seem to think they're mortgage interest rate should never go up, I wonder if they should own a house at all! How will you cope if we see interest rates rocket to the level of the late 80's/early 90's? You want a guaranteed low rate, then take out a long term fixed rate mortgage otherwise, get some common sense and realise that your mortgage will fall and rise with interest rates.
Anon, UK

I am 25, a graduate, who has been working for the past 4 years. I have no debts apart from my student loan (which incidentally is costing me more in interest then is being taken off my wages). My girlfriend and I would love to move out of our parents houses and get a place of our own, however, we cannot even get a mortgage that would cover three quarters of the price two bedroom terraced houses are selling at. All we can do is save up a deposit and hope prices come down or our wages go up. If an interest rate rise does anything at all to slow the housing market then I, for one, am all for it.
Ian, Essex

It is a small step towards realigning house prices Jonathan, UK

Good thing too. They need to go higher to curb this ridiculous credit spending spree the country has embarked upon, as well as helping pensioners get some return for their hard-earned savings. Maybe it is even a small step towards realigning house prices: we cannot afford to rent, let alone buy, a house in the same city as we work. Roll on more rate increases!
Jonathan, UK

Could the Bank of England explain at what point they stopped targeting inflation and started targeting house prices ? Inflation is 1.1% and falling despite many years of double digit house price increases.
Mark Watson, Thame, UK

I don't think a quarter of a percent here or there makes much difference to the housing market. However if the UK pushes rates up beyond international norms, this will push up the value of the pound, great for holidays, great for people buying imported goods, bad for industry.
Andrew, Cirencester, UK

I work in the mortgage business and I am convinced that it is the lenders who have inflamed the increasing property prices. It is so easy to borrow money now - up to 10 times your salary, self certifying income that you don't get. If buyers couldn't borrow so much, they couldn't pay inflated prices and that would keep a lid on the market. But then the big profits for the banks and institutions wouldn't be quite so easy to come by, would they?
Biddy, Southport, UK

Using interest rates alone to cure house price inflation Michael White, Aberdeen, UK

Using interest rates alone to cure house price inflation is not appropriate given than most of the problems in the housing market are on the supply side. Too few houses means higher prices. The planning system needs to be more flexible to permit new housing development. This would reduce house price inflation and obviate interest rate rises that damage the whole economy.
Michael White, Aberdeen, UK

A rise of 0.25 on interest rates is pathetic. The damage is already done. How can these so called financial experts have got it so wrong for so long? Fiddling while Rome burns comes to mind. Rates should rise by anything up to 2% right now. And the savings institutions want to get there act together and raise savings rates immediately by the full amount of any rate rise. 0.25% rises which are already over 6 months too late is just tinkering with the problem. Those people who have been prudent and continued to save to support themselves are always the losers in this crazy set up.
William Pound, Paignton, UK

Even more money I'll owe on student loans. Even fewer reasons to do a degree.
Nicola Kerrison, Cambridge, UK

I bet all the people who made this decision don't have to worry where the money is to come from to pay for interest rises! What about having a few real 'wealth creators' on the committee?? Instead of those with vested interests and those living off the tax payer.
Mike Fitzhugh, Northampton

The current rate of house price inflation is absurd Jack, London, UK

I earn a good wage well above the UK average and yet I can not even come close to being able to afford to buy a home in the South. I find it shocking that the only houses that are anywhere near affordable are tiny shoe boxes that are depressingly small and of shoddy build quality. I think there is a poverty of common sense and lack of generosity of spirit in this country. The real problem has been expressed before in this forum. A high demand for a very limited stock of houses that are available. The current rate of house price inflation is absurd and does no-one any favours in the long run.
Jack, London, UK

Surely the writing was plainly on the wall? So why did so many people re mortgage up to the hilt and perhaps are now regretting it? I recently re mortgaged; not to free up money for a spending spree but in order to get a 2 year fixed rate as it was obvious what was coming, borrowing not a penny more than necessary to repay my mortgage. Sure, I'd love to buy a new car but I'd rather drive an older model and be able to sleep at night without being consumed by worry about how I'm going to meet the repayments.
Max, UK

Be nice to see banks raise their savings rates a little sharper though Peter, London

Not a jot - saw this coming a mile off and have recently acquired a 5 year fixed rate mortgage at a bargain rate! Be nice to see banks raise their savings rates a little sharper though, they can't have their cake and eat it.
Peter, London

We need a mortgage tax that can be raised to dampen house price inflation or reduced when the base rate needs to rise and house prices are falling. This leaves the base rate for helping UK business and manufacturing.
Craig Kirkland, London

This represents another good reason why the Scottish Parliament needs fiscal autonomy. To calm the overheating south east of England, Scotland must yet again suffer.
Keith Brockie, Falkirk, Scotland

It still won't precipitate a housing crash. Lack of supply and plenty of demand will see to that. Those people who think otherwise will be waiting a long time.
Dean, Maidenhead

Why punish those who have recently joined the housing market, because society has fostered a credit card culture which is totally out of control? Surely there should be a more targeted approach by the Bank of England to address needless borrowing and scorecards rather than threaten hardworking recent homeowners.
Tom Foster, Winchester

I used credit cards to tide me over between jobs Sarah

I have suffered three redundancies in the last 4 years. My partner is now being made redundant. I used credit cards to tide me over between jobs, and we raised money on the house in order to do it up, as we couldn't afford to move anywhere bigger or better. Council tax has gone up, mortgages and bills going up, fees on credit cards are horrendous, and now I'm a civil servant, earning less than I was in 2000, and had a pay rise that didn't even cover my extra travel costs incurred when the OFFICE moved to save money on accommodation. So, to all of you that are hoping the mortgage rates rise even more, and put people like me under even MORE financial pressure - thanks a lot! I only wish I *had* spent the money I owe on luxuries, maybe I could have sold it when times got hard?
Sarah

I have just bought my first home and have allowed for a bit of an increase in rates within my budget but rates do seem to be reviewed almost weekly.
Ashley, Luton

Small, frequent interest rate rises benefit the banks, as so many of them increase mortgage rates before investment returns. If the Committee thinks higher rates are the answer to the country's economic problems, they should have the courage to make a meaningful change now.
Anthony, Leeds, England

It will be interesting to see if the banks increase the percentage on savings accounts as quickly and by as much, not holding my breath on that though
Stefan, Leeds

Once again the government is trying to control a complex economy by adjusting one factor. House prices are rising due to demand outstripping supply - this is the real problem. These rises will just eat up our already meagre pay rises this year.
Paul, Spennymoor

A one shoe fits all approach seems to be failing Iain, Doncaster

Successive rate rises have not yet dampened house price inflation. If this is the prime motivator for the rise, then other controls must be found which directly attacks this. A one shoe fits all approach seems to be failing.
Iain, Doncaster

Why penalise those who have already carefully budgeted and bought houses, when the aim is to hit potential future buyers/sellers? It's not fair!!! Can't they come up with a system to discourage future purchasers/vendors without wrecking the lives of those who have already committed themselves and can't turn back?
Simon, Southport

I welcome the rise, the house prices in Greater London for the working class are just ridiculous, I don't want to move North just so I can afford a house. I hope they continue in this vein and we get to 6% and not the 5% they have targeted for the end of this year. Bring the house prices down, people borrowing against their house prices and spending on fancy stuff should be more careful with their money flow!
Anonymous

Being in a part of the country where the average house is almost 6 times the average wage, I welcome any interest rate rise with open arms as I have been forced to sit and watch house prices spiral away from my reach and am hoping they will come back down sooner or later. I just wish the Bank of England was not so scared of raising rates by more than 0.25% as it is doing absolutely nothing to stop spending.
Stephen, Cardiff, Wales

Interest rates will have no effect of credit card borrowing. I've maintained a 0% interest rate on by balance for 18 months now simply by transferring it around every 6 months.
Kevin, Aston

I think that the housing boom is due to a large number of people buying second homes as an investment because the stock market isn't doing so well etc. Therefore all the first time buyers' property is being snapped up by the wrong people. I don't think raising interest rates will necessarily discourage that - maybe a higher rate of stamp duty for people buying second homes as an investment might help. As for those people who stick thousands of pounds on your credit cards - you're all mad!
Maria Clarke, Sittingbourne, Kent

I'm absolutely furious at yet another example of the scattergun approach - If some people are causing problems then penalise everyone. In recent years I have neither moved house nor taken out any loans - I don't even use a credit card...why are my mortgage repayments now going to increase? Is it beyond the wit of this totally useless government to devise a way to penalise the perceived wrongdoers thus avoiding the need for the B of E to raise interest rates.
Paul Hodgson, Bradford, West Yorks

Personally I am glad. I think that we need to up interest rates in order to curtail the crazy levels of personal debt in this country.
Tom, UK

Putting up interest rates will not help the market. If they are concerned over the amount of mortgage debt out there it is the top end of the market not the entry level. A rise is only but deterring entry level buyers which is against government wishes.
Paul Staples, Hertfordshire

As a homeowner with a lowish mortgage, small increases in interest rates won't affect me too much. The problem I have is with very low inflation. It makes pay rises seem paltry and doesn't eat into your debts making them smaller. I think the inflation level is set too low and should be around 5%...
Kev, Cheshire

Why not let us keep our money? Richard, Surrey

So in order to stop us spending they raise interest rates so the banks get our money instead. Eh? Why not let us keep our money and spend it on things that people make thus keeping them in jobs and etc? Raising rates just puts more money into the coffers of the big banks.
Richard, Surrey

I have savings and no house - so I welcome a rise - hopefully followed by a house price crash!
Dan, UK

Like anyone who understood how low rates were when I took out my mortgage, and took into account the fact that they could easily double or more, I won't be unduly affected. It will cost me the price of a few pints of beer per month. Anyone who is already worried about repayments had better hope the rates don't go back up to 15% again any time soon.
Anon

Since I cannot buy a house, nor, seemingly, will ever be able to (house prices are rising by roughly the same amount each month as my yearly raises) I would like the interest rates to go as high as possible. That way at least the interest in my savings account may be worth something.
Anonymous

From a purely selfish point of view, I'd rather interest rates dropped as it would reduce my monthly mortgage payment. However if it helps dampen the ridiculous house price situation then good! My only worry is that I may find myself in negative equity if prices plummet. If that was to happen and I was to lose my job then it would be a personal disaster.
Steve, London

The uncertainty of interest rate changes does more damage to the economy than anything else as it makes long-term planning difficult at best and often impossible for start-up enterprises operating on wafer-thin profit margins. At the personal level it makes taking out a mortgage something of a lottery for the same reasons.
John M, Lyne Meads, UK

I will be ringing my building society and asking to extend my fixed rate for another two years.
Anonymous

Small print: "Interest rates can go up as well as down". Read it before you run up huge credit bills you cannot pay.
Kelly, UK

Not at all. I have a sensible, fixed-rate mortgage, that is not beyond my means. I have no loans or massive credit card bills. I pity those poor saps whose "must have" lifestyles force them into more and more debt.
Roger, UK

Hopefully I'll get a better return on my savings.
Julie, East Lothian, UK