Interest rates: what a rise might mean for you

By November 5, 2021Financial Planning

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).

In early November, the Bank of England (BoE) surprised traders, investors and fund managers by holding interest rates steady, at their historic low of 0.10%. Many analysts had forecast that these would rise to 0.25%, leading to high street banks raising their own rates in anticipation – making mortgage deals more expensive. A base rate rise was widely expected due to the UK’s rise in inflation in 2021, sending the overall price of goods and services higher. Raising interest rates is usually a way to keep inflation under control, yet the BoE seems to believe that current levels of inflation are “transitory” and should “cool down” on their own in 2022. 

Whether or not this happens is yet to be seen. However, the BoE has hinted that it may need to raise the base rate in the near future. Below, our financial planning team at WMM in Oxfordshire explains what an interest rate rise could mean for your finances, savings and investments.



Banks usually follow the base rate when setting their own interest rates. A rise in the former, therefore, should mean a rise in the interest rates available on regular savings accounts. Yet this is unlikely to happen quickly, which can be frustrating for savers. Instead, banks might raise their overdraft rates first until prominent competitors take the first move. Online “challenger” banks may increase rates to grow their customer base. 



Whilst banks are hesitant to pass the changes of a base rate rise onto savers, they are typically happy to do so for people who owe them (as evidenced by the pre-emptive rises stated above). Those on a standard variable rate (SVR), therefore, are likely to see their monthly mortgage go up – as are those on a “tracker” mortgage. People with a fixed-rate deal should not see monthly payments change until their deal expires. At which point, if the base rate has gone up, deals on the market may not be as cheap as they were before. 

Right now, borrowers are in a difficult spot since most lenders have increased their mortgage rates despite the BoE holding steady at 0.10%. Should you wait until lenders reduce their rates back down, to reflect this? To date, banks have not indicated that they will do this. Instead, they may hold these steady into 2022 – when the BoE may need to raise the base rate anyway. One thing to bear in mind is the possible impact of an increase in interest rates on property prices. In such a scenario, these are likely to cool down as mortgages become more expensive – leading to a drop in demand. We are though still dealing with historically low interest rate levels, even if increased as expected.



A rise in interest rates is likely to have a big impact on stock and bond markets. This is because the “risk-free” returns offered by UK government bonds (gilts) rise and become more attractive, leading more cautious investors to sell their shares and buy gilts. If enough investors do this, it can result in huge downward pressure on the valuations of publicly-listed companies, resulting in a decline in the stock market (i.e. a bear market). 

Here, investors need to be careful not to try to “time the market” by pulling out of shares just before an expected rise in the base rate. As recently seen with the BoE, this cannot be accurately predicted. Instead, it is usually better to have a long-term investment strategy agreed with your financial planner, which can give your wealth the best chance of growing in various market conditions – including those which feature higher interest rates. Also, consider seeking professional advice if you have a lump sum ready to invest, instead of gradual contributions (i.e. “pound-cost averaging”). 



Interested in finding out how we can optimise your financial plan? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469