Rising interest rates create ‘financial misery’ for…

Interest rate hikes aggravate financial difficulties


The Bank of England says it hopes to prevent high levels of inflation from becoming entrenched in the UK economy. With wage inflation fueled by staff shortages, the Bank is using rising interest rates to try to control inflation.


However, while higher interest rates are designed to control inflation by discouraging consumer spending, the current rise in prices is driven by the rising cost of basic necessities.


So an increase in interest rates is likely to simply add to people’s financial misery by also increasing the cost of mortgages.


UK hit by ‘perfect storm’


In many ways, it’s the perfect storm, says KIS Finance. Average electricity and gas bills are expected to hit £2,000 a year when the government’s price cap is raised next month. At the same time, food prices have risen the most in almost a decade.


Meanwhile, motorists are facing soaring petrol prices due to the rising cost of crude oil and the National Insurance increase from April will put more pressure on already public budgets. strained.


Additionally, the war in Ukraine is already impacting the cost of fuel and other items, intensifying the cost of living crisis here in the UK.


Before the invasion, experts had predicted inflation would peak at 7.25%, but the impact of the crisis means many now anticipate we could see rates above 8% in the coming months.


More than a quarter of people already have financial difficulties


As the impact of rising inflation begins to be felt, more than a quarter of respondents say they are struggling to make ends meet.


While some inflation is needed to keep the economy running smoothly, the current rate is well above the ideal level of 2% that the Bank of England aims to maintain.


With the Bank raising interest rates to 0.75%, this will put further pressure on stretched household budgets as mortgage and loan repayments increase.

Young people hardest hit by rising costs


It is therefore not surprising that more than 35% of 18 to 24 year olds say they already have difficulty getting by financially.


Research from think tank Demos has found that young people are currently the hardest hit and face the ‘biggest uphill battle’ to make ends meet. With potentially higher debt levels and lower incomes, it is this demographic that may find it most difficult to afford additional expenses as costs rise.


As their daily living expenses increase, their ability to save is likely to be hit hard. For many, this will mean that the dream of saving a down payment to get on the property ladder will now be even less of a reality than before.


36% of over-55s fear things will get worse


While the youngest are already feeling the impact of the rising cost of living, those over 55 are the most worried about the impact on their finances in the months to come and anticipate finding themselves in difficulty soon.


While they may have higher levels of savings, anyone thinking of retiring in the next few years may now be wondering if they can afford to do so.


The southeast feels the pinch


Some 30% of Southeast residents already say they are struggling financially as a direct result of rising costs.


While average wages may be higher, increases in the cost of living are being felt hard by those who live there. If interest rates rise again, those with large mortgages will feel the pinch even more as monthly repayments rise alongside rising other costs.


Commenting on the results, Holly Andrews, Managing Director of KIS Finance, said: “The Bank of England’s early announcement that interest rates will rise to 0.75% will be a further blow to those trying to access on a real estate scale.


“Scarcities in the housing market are driving up prices at the same time as rents are at some of their highest rates on record.”


Andrews says that with the cost of borrowing rising alongside the rising cost of living, those saving for a deposit will find it even more difficult.


She adds: “Similarly, those applying for a mortgage may find it more difficult to meet income requirements, as disposable income is hit by the rising cost of basic necessities.”


“With the potential for another interest rate hike this year, things don’t look to be improving for homebuyers any time soon.”


Leslie M. Gill