Interest rates could go up as soon as December, according to city forecasts, so it’s vital to think about the effect any increase could have on your monthly outgoings.
The Bank of England base rate has been at 0.1% since March 2020, but there is growing speculation that the Bank’s Monetary Policy Committee will vote to raise rates before Christmas.
Here, we look at what you steps you might be able to take to shore up your finances ahead of a potential interest rate rise.
Consider locking into a fixed rate mortgage
If you’re currently on a variable rate mortgage, your monthly payments are likely to increase when interest rates go up. One way to protect yourself against steeper costs is to think about locking into a fixed rate deal, where your payments remain the same each month regardless of what happens to rates.
If you’re tied into a particular mortgage deal at the moment, you can still secure your next deal three to six months before your existing mortgage ends, so if you spot a competitive deal, it’s a good idea to act sooner rather than later. That way, you can roll straight onto your next deal when your current mortgage deal finishes, without rolling onto your lender’s standard variable rate.
According to research by L&C Mortgages, £29bn of mortgages are due to come to the end of their initial rate in October and homeowners will automatically move onto a higher variable rates unless they take action.
Look at ways you can reduce other outgoings
As well as making sure you’re not paying more than you need to for your mortgage, look at ways you might be able to reduce other outgoings. For example, an interest rate rise may push up credit card and loan rates too, so look carefully at your debts and try to pay down the ones charging the highest rates of interest.
The cost of borrowing on credit cards is already at a record high of 26.0% APR, but you may be able to reduce your credit card costs by transferring the amount you owe to a balance transfer card offering a 0% introductory period for several months. For example, Santander is currently offering a balance transfer card with a 0% rate for 31 months, enabling you to pay back your debt gradually without running up hefty interest charges. The card has a 2.75% transfer fee and charges interest at 20.9% APR once the 0% period ends.
It’s also worth going through your bank statements and seeing if there any other costs you can cut back on. For example, are there any subscriptions you pay for but don’t use which you could cancel?
Give your savings a boost
The one silver lining of higher interest rates is that it should mean better returns for savers. Check how much interest you’re earning on your savings and if interest rates do go up, see if you can find a better deal elsewhere. Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Savers looking for a decent return on their cash may have noticed a rise in short-term fixed bond rates recently, but a notice account may be a more suitable alternative for those who are not comfortable with locking their cash away for too long.
“Six months ago, the average notice account rate was 0.37% and in May 2021 it fell to a record low of 0.36%, but this has since risen to 0.54% thanks to significant improvement in competition.”