As the Bank of England announces a further rise in the interest rate – and with suggestions there will be more to come – we look at how this could impact you, and how you can try to mitigate the effects…
Managing your money
Following the Bank of England upping interest rates – from 0.25% to 0.5% – many homeowners will face paying more on their monthly mortgage payments. This is the second rate rise in less than two months.
And while we have enjoyed many years of low interest rates, the looming spectre of more rate rises will be worrying to anyone with a mortgage.
This, coupled with a rise in National Insurance rates in April, and the increase in energy prices (according to Ofgem, electricity and gas bills will increase this April by 54%), will have many of us tightening our belts.
So we look at how this might impact you – if you are a homeowner, pensioner or someone with savings, and what actions you can take to soften the blow.
Those with variable rate tracker mortgages may see increases first, as their rates will be likely to rise as the Bank of England changes its rates.
If you hold a standard variable rate mortgage, your payments will also see a rise – but by how much is up to your lender.
If you have a fixed rate mortgage, your payments will not change while that fixed rate applies, but be aware that when you come to remortgage, you may be paying a higher rate.
There is more detail on the impact subject to your type of mortgage in a previous article.
Having a financial plan in place will lessen the stress should we see interest rates rise further. While the recent small rises may not have a huge impact on your monthly payments, should we see a series of rises, they could start to have an effect on your budget.
Creating a cashflow forecast is a really useful way to see what you are up against – and can help you to see how you can manage your finances should the worst happen. Having this in place will allow you to be in control of your finances – and lessen any stress or anxiety about your situation.
Formulating a cashflow forecast can be done quite simply on a spreadsheet showing incomings and outgoings, and simply allows you to consider any predicted changes. We explain how it works in terms of planning for your growing family on our guest blog at MyBump2Baby.
Looking ahead at possible rate rises, your cashflow forecast can highlight how this will affect your mortgage payments and, in turn, help identify where you might be able to save money elsewhere, to balance your budget.
Once you have calculated how much more each rate rise will cost you, you can formulate a plan. You could identify where you might be able to cut back on expenses or luxuries to ease your budget. Or you could start to put some money aside now, ready to help out should the rate rise (or your fixed rate finishes). With a rise in inflation possibly affecting job security, having some savings set aside is not a bad idea, to act as a buffer should things not go as planned.
This is also a good time to start ensuring that your credit score is as good as it can be, so that when you come to remortgage you have accessibility to all the best deals. This is something an independent financial adviser can help you with.
If your current mortgage deal is close to ending, start by talking to an independent adviser and looking around for new deals at a good rate. You might even want to consider paying the early exit fee on your current deal to ensure you get a good interest rate for the next few years. Again, discussing this with an adviser is certainly worthwhile as he or she will help you weigh up the pros and cons and may flag things that you hadn’t previously thought of.
If you are on a good rate at the moment, it is certainly worth considering overpaying on your mortgage, so that you owe less once your next remortgage is due. Obviously, only do this if you are confident that you can afford it. Different mortgage deals have varying rules about overpayment, so check with your lender.
The effect on borrowers
Most other loans, such as personal loans to buy a car or pay for a holiday, should not be affected by the rate rise, as a fixed rate will have been agreed when you first took out the loan. But, if you are planning to borrow money for home improvements or another big project, consider taking out finance sooner rather than later, in case rates rise again.
You also need to watch for rising interest rates on credit cards and overdrafts. If you can afford to, it is worth paying off the debt – monthly if you can – or transferring the balance to an interest-free card. Be aware that if you cancel a credit card and repay the balance within 60 days, even if the card company has announced a rate rise, you will only be charged the previous lower rate.
What about savings?
And last, but not least, what about savings? Well there’s little here to say at present. If you do have savings in a variable rate account or Cash ISA, you should see interest rates go up a little – and it’s worth shopping around to see who is offering the best deal as rates change.
As always with financial matters, consulting an independent financial adviser is always worthwhile to enable you to have a good understanding of the bigger picture.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across England and Wales. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email firstname.lastname@example.org.
YOUR MORTGAGE IS SECURED ON YOUR HOME. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.