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What does an interest rate rise mean for you?

  • 12/02/2018

This article is over a year old

Low incomes families could be worst off under changes

Cash on a table

The Bank of England’s warning that it plans to raise interest rates in the coming months may negatively impact millions on low incomes families.

Rising rates usually benefit those who save and negatively impacts those who borrow. In short, a rise in interest rates means a higher cost of borrowing.


A recent report by the banking and finance corporation ING said that 28% of people with debts would struggle with rising interest rates.

An overview of how many people in the UK have debt:

  • 27% have credit card debt

  • 13% have overdraft debt

  • 12% have debt from a personal loan

  • 8% have student loan debt

  • 7% have debt to friends and family.

Low Income Families

Currently, UK households spend 7.7% of their disposable income on debt repayments, according to the Resolution Foundation.

However, low incomes families tend to spend more on debt repayments and are already experiencing more ‘debt distress’ than higher incomes families.

Debt distress among the poorest fifth of working-age households affects them in a range of ways:

  • 65% don’t have the savings to deal with an emergency

  • 37% are credit ‘constrained’

  • 36% struggle to pay for their accommodation

  • 35% report at least one sign of debt distress

  • 21% find unsecured repayments a heavy burden.

  • 16% are in arrears

  • 8% report at least three signs of debt distress.

A rise in interest rates would be likely to make this situation worse.

If interest rates rose by two percentage points, the most notable consequence would be the immediate increase in mortgage repayments. The average monthly mortgage payment would go up by £71.

Find out what help with debt is available



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