Interest rate hikes are coming – so protect yourself
According to Annabelle Williams of Nutmeg, an investment firm, anyone who uses the standard variable interest rate should switch to a fixed income business now to secure a low interest rate for several years.
She said, “You can save hundreds of pounds every month this way. Over the course of a lower interest rate mortgage, even a small difference can mean you pay tens of thousands less on your home.”
Those switching to a fixed-rate mortgage should keep in mind that shorter terms like two-year fixed rates typically have the lowest rates while 10-year fixed rates are typically higher.
“If you leave the contract before it expires, you’ll pay a fine. So consider staying in your current home or moving, and if you want to buy another home in the next few years, you could move to a different apartment two year fixed rate mortgage and pay a really low interest amount, “she said.
Homeowners planning to reschedule may have little time to act, said Hargreaves Lansdown’s Sarah Coles, the stockbroker. Banks won’t wait for rates to rise before new mortgages get more expensive and price them in early.
“That means it’s worth looking for a new mortgage sooner rather than later. Right now, you can still find incredibly cheap mortgages so it’s a good time to start your search,” added Ms. Coles .
How will rising interest rates affect my savings?
The good news is that savings rates could be pulled from their record lows. No generally accessible savings account has been able to reverse the eroding effects of the rise in prices caused by a higher rate of inflation. This means that the pots of money to be saved will fall in real terms below the current rates.
Most bank accounts only pay 0.01 percent interest. With a balance of Â£ 50,000 that would only bring in Â£ 5 a year. Even savers who managed to get the best deals must lose hundreds of pounds.
Rising interest rates could drive savings rates up, making it more attractive to put money aside, although it can take a long time to materialize as it comes with a delayed response unlike rising mortgage costs, Geddes warned. “It is unlikely that savings rates will rise as quickly as mortgage or other rates,” he said.
Anyone with an easily accessible savings account with a high street bank shouldn’t wait for rates to rise before switching to a more competitive alternative, said Ms. Coles of Hargreaves Lansdown.
It can be tempting to wait for a rate hike to get a better deal when you want to deposit funds into a fixed rate account, but it could prove costly. Mrs. Coles said:
âThe risk is that you end up waiting longer than expected while your money is in a far less rewarding place. Alternatively, it may make sense to set a shorter deadline. The Bank of London and the Middle East is offering .85 Percent over six months. ” and Gatehouse Bank pays 1.51 pc if you repair for a year.
Are my debts getting more expensive?
Yes, higher interest rates also mean credit card and loan payments can get expensive. Ultimately, this means that it costs more to borrow from banks, and lenders tend to pass those costs on quickly.
Cash savers should give priority to paying off high-interest debt before interest rates go up and the cost of their loans goes up.
According to Ms. Williams, if you have outstanding debts on a credit card, it pays to move to an interest-free business. It is possible to convert your balance to an interest-free rate that runs for about two years, she said.
“That gives you plenty of time to pay off the debt, provided you make a plan and set up a direct debit to pay more than the minimum repayment amount each month.”
Large purchases like buying a car or renovating a home often stay through spring, but waiting that long could cost you, Ms. Williams said. “If you’re planning something that will require a lot of spending, now is a better time to take out a loan while the interest rates are still good.”