One of the questions we are asked most often at MAPIO Financial is:
“What do you think will happen with interest rates?”
The short answer is simple: no one knows for sure. Economists and financial analysts can offer predictions, but history has shown that even the most informed forecasts can be wrong. Since the Covid-19 pandemic, we’ve seen countless predictions that didn’t match reality, highlighting how unpredictable interest rates can be.
At MAPIO Financial, we focus less on guessing the future and more on helping you understand how interest rates affect you personally. By approaching interest rates from this perspective, you can make informed decisions that directly impact your financial stability and goals.
Why do you need to understand Interest Rates
For most households, a mortgage is the largest monthly expense. Even small changes in interest rates can significantly affect budgets, lifestyle choices, and long-term plans.
Ask yourself:
- Can I afford to move home?
- Can I afford to stay in my current property?
- Can I afford to buy my first home?
- How would a new mortgage payment affect my monthly disposable income?
- Would changes in my mortgage costs affect other goals, like a holiday, car, or savings plan?
By understanding interest rates in the context of your personal finances, the conversation becomes much more meaningful and practical.
How Mortgage Rates Are Actually Set
A common misconception is that mortgage rates directly mirror the Bank of England Base Rate. While the Base Rate does influence borrowing costs, it is not the only factor. Mortgage rates often do not change at the same time, or by the same amount.
Mortgage rates are actually largely influenced by financial markets, particularly SONIA (Sterling Overnight Index Average) and swap rates. These reflect market demand, investor expectations, and predictions about future interest rates. Lenders often factor these anticipated changes into their mortgage pricing well in advance.
This is why mortgage rates can rise or fall even when the Bank of England Base Rate stays the same. Understanding this process is key to making informed financial decisions.
Thinking Beyond Rates: How Interest Rates Affect You
Interest rates are important, but they are only one part of the picture. To truly plan ahead, consider how changes in rates affect your mortgage and finances:
- A 0.5% rise on a £250,000 mortgage could add hundreds of pounds to your annual payments.
- Even small increases in monthly payments may require adjustments to your household budget.
- Conversely, a fall in rates could allow you to overpay your mortgage or redirect funds toward savings, investments, or lifestyle goals.
By understanding your finances and planning for potential rate changes, you take control of your financial future rather than leaving it to chance.
Steps to Protect Yourself and Your Finances
Here are some practical steps recommended by MAPIO Financial to help you prepare for uncertain interest rates:
- Understand your finances. Track your monthly income and expenses to see exactly where your money goes. This foundational step is often overlooked but critical for financial planning.
- Create a personal and financial plan. Align your lifestyle goals with your finances. Whether it’s moving home, buying a car, or saving for a holiday, understanding the relationship between your plans and your mortgage payments is essential.
- Build financial resilience. Life is unpredictable. Having a buffer in savings or a flexible mortgage plan ensures you can weather unexpected events without financial stress.
- Consider mortgage options carefully. Fixed-rate mortgages provide certainty, while variable rates may offer advantages if rates fall. Understanding these options can help you make the best choice for your situation.
- Seek expert guidance. At MAPIO Financial, we help you navigate the mortgage landscape, understand your options, and make decisions that support your long-term goals.
The Bottom Line
Interest rates will rise and fall, and no one can predict the exact timing or magnitude. But by understanding how rates are set, how they affect your mortgage, and how they fit into your overall finances, you can make decisions that protect your financial future.
At MAPIO Financial, our mission is to help you understand the mortgage market, make informed choices, and achieve your personal and financial goals—whatever the economic climate brings.
By staying informed, planning ahead, and building resilience, you give yourself and your family the best chance to thrive. Call us today on 01904 235000 or contact us, we would love to help you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
29 January 2026 The information contained within was correct at the time of publication but is subject to change.
