Have you planned for an interest rates rise? There is growing speculation that an interest rates rise will be on the cards after Mark Carney, the Bank of England governor, suggested that a rise in the Bank Rate was “drawing closer”.
The official Bank of England interest rate has been at a record low of 0.5% since 5th March 2009, and whilst the Bank of England has given no indication of exactly when a rates rise might come, the City is predicting spring 2016.
The last time interest rates rose was on 5th July 2007, and for a whole generation of borrowers the impact of an interest rates rise has yet to be experienced.
Even though the rates rise is initially predicted to be fairly modest, for many borrowers this will increase their monthly repayments, and for those already feeling the squeeze, it is especially important that plans are made now to prepare.
The obvious impact for many borrowers is on their mortgage repayments, and the focus of media attention tends to be on how much mortgage rates will change ahead of an interest rates rise, and what level of activity and trends are being seen in the mortgage market as borrowers look to re-mortgage and fix in to more favourable deals.
For borrowers with other forms of secured loans, unsecured personal loans and credit card repayments, an interest rate rise will have just as much, if not more, of an impact on the amount they repay each month. It is therefore also important that borrowers prepare for any changes well in advance to avoid any uncomfortable shocks.
Planning for interest rates rise
As a starting point, borrowers should look at the terms of their repayment plans to see how it relates to interest rates. Fixed rate deals will be easier to plan for than variable rate deals, but it is important to look at the length of repayment deals to see when terms change. Now might be the right time to consider whether loans can be restructured to lock into more preferable fixed rate deals in the longer term that take any future fluctuations out of the equation.
For those with a number of different loan repayment plans, it could also be the right time to consider whether a debt consolidation package, fixing various repayments under one plan, would be suitable and achievable. This could potentially help with managing repayments over the longer term, and take out some of the fluctuations that would otherwise be difficult to plan for in the case of several successive rises in interest rates.
Whatever the circumstances of the borrower, the key thing is to make sure to plan in advance for the rise, whether that be simply to budget for the increase in repayments, or to undertake a detailed review of the current loan packages. Doing nothing is the only way that this long-speculated interest rate rise will come as a shock.