UK borrowing costs and personal finances – what the 27 year high means for you

The headlines have been dramatic: “UK borrowing costs hit their highest since 1998.”

It sounds like a crisis waiting to happen. But while the numbers are real, the impact on your personal finances is far less dramatic than the headlines suggest.

| What’s happened?

The UK government has recently had to pay its highest borrowing costs in over 25 years on its debt.

The government raises debt by issuing gilts. Institutions and individual investors buy the gilts (lending money to the government) and in return they receive a coupon (interest yield) that the government pays.

For example, support for Ukraine, the HS2 build and other government projects cannot alone be funded through tax receipts. The UK government issues debt to pay for these.

Investors currently want higher coupons for lending the government money. That means it’s more expensive for the government to borrow.

This rise in UK borrowing costs is part of a wider global trend. Yields in the US and Europe have also risen, as markets adjust to inflation, growth expectations and central bank policy.

The Bank of England has even urged against exaggerating the news - pointing out that it reflects market shifts, not financial instability.

| Impact on the UK government

For the government, higher borrowing costs mean:

• More expensive debt repayments

• Less flexibility in future budgets and spending.

• More stress for the chancellor (sorry, Rachel Reeves!)

  
  

It could mean increases to tax or a decrease in spending, as more money goes on servicing existing debt.

But again, this isn’t unique to the UK. Global investors are adjusting expectations everywhere.

| How UK borrowing costs affect personal finances

1. Mortgages:

   
   

Some lenders have already nudged mortgage rates slightly higher, especially for fixed-rate deals.

But remember: the Bank of England base rate is already lower than a year ago. Mortgage rates reflect that.

If you’re due to remortgage, it’s worth shopping around, as competition between lenders is still strong.

2. Investments and Pensions

Higher gilt yields can actually be good news for pensions and certain investment funds.

You can now get higher returns for government bonds which are generally seen as a defensive investment.

Additionally, cash savings rates may also see a boost. This is particularly relevant for ‘National Savings and Investments’ (NS&I) holdings as these are government backed. Over £240 billion is held with NS&I as at 31^st March 2025 and this provides a solid source of borrowing for the government

3. Everyday finances

For most households, there’s no immediate impact. Unless you’re refinancing a mortgage or making large borrowing decisions, the effect on your day to day spending is limited.

We’ll all have eyes on 26^th November Budget where Rachel Reeves will reveal her plans for the UK budget.

| Summary: UK Borrowing costs and your personal finances

Yes, the UK is paying more to borrow than at any point since 1998.

Yes, that makes for eye-catching headlines.

But for individuals, the effect is more modest than it seems. Mortgages may tick up slightly (but lower than a year ago), investments may even benefit, and the wider picture is shaped by global markets, not just the UK.

The best approach? Keep calm, carry on, and review your personal finances regularly.

Reacting to headlines rarely benefits wealth building. Staying the course does.

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