Preparing for interest rate rises

In today’s uncertain economic climate, it’s important to have the right preparations in place to deal with the possibility of rising interest rates. Interest rates are set by both the Monetary Policy Committee (MPC) and the Bank of England (BoE). It is their interest rate which banks borrow from. Although banks don’t have to follow the Bank of England’s rate, it can still strongly influence our finances, affecting a number of areas from mortgages and borrowing to pensions and savings.


Whether or not interest rates affect your mortgage repayments depends on what type of mortgage you have and when it ends. 

Those with variable-rate tracker mortgages linked to the BoE base rate will see an uptick in their repayments should the interest rate rise, whilst those with standard variable-rate mortgages will see an increase in line with an interest rate rise. The amount of which is decided by their lender. Individuals with fixed-rate mortgages will only be affected when they reach the end of their current deal, however, an interest rate rise could make remortgaging a more expensive prospect.

Quick tips: 

  1. Find out what mortgage you’re on. If you don’t know, check the paperwork provided by your mortgage provider to find out.
  2. Work out what you can afford. In the case of an interest rate rise, figure out if you can afford the increase. Create a budget and see if there are any areas where you could cut back.
  3. Increase your credit score. A better credit score = a better rate once your deal comes to an end or when you remortgage.
  4. Overpay your mortgage. If you’re currently enjoying a low rate, take advantage and pay a little extra. There are limits on how much you can overpay, so check with your mortgage provider first.


Interest rate rises can actually be beneficial for savers, who could see an increase in the rates associated with variable rate saving accounts and Cash ISAs. Banks and building societies are always competing with one another to offer the best interest rates, so be sure to shop around to find the best deal. 


Rising interest rates can be a good thing for pension planners, as money that sits in certain pension pots will experience an increase in value. But just keep in mind that this doesn’t apply to every pension product – for instance, some pension pots’ returns could be affected by stocks and shares, rather than interest rates. 

It’s also worth mentioning that rates on savings accounts provided by banks and pension providers don’t always correlate with the Bank of England rate; there could be a delay before the rate changes are implemented, or the terms of the investment could have a fixed rate, instead of variable (in line with the base rate).