What will happen to your finances now interest rates have gone up? We take a look at the winners and losers

INFLATION dropped back down 3 per cent this January but interest rates are still high after The Bank of England raised rates from 0.25 per cent to 0.5 per cent, the first time this has happened since 2007.

But what does it mean for you?

What is the base-rate?

Simply, it's the country's official borrowing rate.

It's set by the Bank of England and is the rate it lends to all the other banks in the UK.

It's really important as lenders use it as a guide to decide what rates it can offer - so it impacts on what you pay on everything from your mortgage, to credit cards and loans, to how much you earn on your savings.

Why have rates been so low and why have they increase?

Lowering base rate is one way the Bank can help stimulate the economy as the lower the rate is, the more cheaply consumers are able to borrow.

We've had record-low rates for so long because of the state of the economy after the financial crash in 2008.

The Bank slashed rates to 0.5 per cent, and then last summer, cut it again to 0.25 per cent, following uncertainty after the EU referendum.

Now the Bank of England has taken made the decision to raise the base-rate because of the rising inflation figures.

Raising rates, should, in theory, help control inflation by dampening demand in the economy.

Who are the winners from a rate rise?

Savers

Those fed-up with earning next to nothing on their savings will be pleased to see a rise after putting up with rock-bottom rates for so long.

But while any rate rise will be welcome, money expert Andrew Hagger warned it won't be a huge benefit.

He said: "While an interest rate is long overdue, a 0.25 per cent rise deosn't make a huge difference.

"But at least it is a step in the right direction and it may be the first in a number of rises over the next couple of years."

Mr Hagger said a rise of 0.25 per cent on a balance of £2,000 will gain just £5 in interest.

Who are the losers?

Borrowers

There are serious concerns UK households are carrying too much debt after a decade of low-rates made borrowing on credit cards extremely cheap.

But new research from consumer website Moneyfacts has found the average card APR is now 23 per cent - a 10-year-high.

With consumers already struggling to meet their monthly bills, a rate hike could mean even more household finances becoming stretched.

Rachel Springall of Moneyfacts warned: "While there has been a huge injection of introductory interest-free offers into the market over the last few years, which can help spread the cost of purchases, this has not stopped a surge in credit card interest.

"What’s more, further rises may occur in response to any base rate hike, as it gives lenders an excuse to pass on higher interest charges to consumers."

On a balance of £5,000, you'll pay just over £1 extra in interest each month on a rise of 0.25 per cent.

Those with a tracker or variable rate mortgage

If your mortgage is a tracker or variable rate deal, a rise will mean an increase to your monthly payments.

As the rise in November is likely only going to be of 0.25 per cent, the increase will only be small, but homeowners need to be aware they'll be paying more.

New figures from TSB revealed a whopping 68 per cent of homeowners don't know how a rate hike will affect them.

Those with a £200,000 mortgage over 20 years will see their monthly payments go up by £26 - £312 a year.

Those on a fixed-rate mortgage won't be affected by the rise, so if you're looking to buy a property or remortgage it might be worth looking at a fixed-deal instead to protect yourself against more rate hikes.

Will this be the first of many rate rises?

No one knows.

Governor Mark Carney has been eager to point out that any rate rise will happen gradually and be limited.

By itself, this latest rise won't dramatically impact household budgets.

But if inflation continues to rise and rates return to something like their historic levels, both borrowers and homeowners could see their finances stretched even further in years to come.

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