Watch out, watch out, an interest rate rise is probably about (to happen)!

The days when interest rates were up into single figures seem like an age ago. The official bank rate has been at an historic low of 0.25% since August 2016, the one and only change since it was dropped to 0.5% in March 2009.

Rates were dropped sharply after the financial crisis of 2008 in order to help stimulate the economy. The problem now is that in recent months, economic growth has slowed and inflation has crept higher.

This has led Bank of England governor Mark Carney to say:

“If the economy continues on the track that it’s been on, and all indications are that it is, in the relatively near term we can expect that interest rates will increase.”

While falling short of a definitive statement that rates will rise, Carney is at the very least alerting us to the likelihood. The first opportunity for that to happen is on 2 November when the Bank’s monetary policy committee next meets.

That said, there’s little reason to worry that interest rates will leap dramatically, let alone return to their most recent peak of nearly 15% in October 1989. Mr Carney is on the record as saying: “interest rate increases when they come­ – when and if they come – will be to a limited extent and gradual”.

However, if you have a mortgage, loan or savings then even a modest interest rate increase could have a significant impact on your finances. So how can you prepare for a potential rise in November?

  1. Take a fresh look at your mortgage arrangements

If you’re on a fixed rate deal, you won’t see any changes to your mortgage repayments unless that deal ends soon. If you’re on a variable or tracker mortgage though, you’ll be paying in the region of an extra £200 per year per £100,000 of outstanding loan. Cheap fixed rate mortgage rates are already beginning to rise but you can currently get 2-year deals as low as 1.1% – so it’s worth investigating whether you can get a better mortgage now. The excellent Money Saving Expert website has a very helpful Mortgage Calculator, which has tools to show what you can save.

  1. Look for a better deal on your savings

On the plus side, if interest rates rise, you’re likely to get a better deal on your savings. You can adopt a wait-and-see policy and shop around if rates go up but if you are currently getting less than a 1% return then it is worth finding a better deal now. One of the best deals for instant access savings is the Post Office online account with 1.27% AER variable. If you are willing to lock your savings away for longer, you can get more – NS&I will give you 2.2% if you are prepared to deposit your cash with them for three years. However, be cautious about locking away your money for too long, especially if rates start – and continue – to rise.

  1. Borrow and consolidate now if you need to

If you need a loan, borrow while rates are still at rock bottom – and be sure to get a fixed rate deal. If you need to borrow between £7,500 and £15,000 then you can get 2.8% rep APR from Sainsbury’s Bank if you are a Nectar customer. It’s worth remembering though, that provided you are a financially disciplined person and only need to borrow small amounts (i.e. less than £5,000) then 0% credit card loans can often be a great way forward. Shop around for the best deals on both.

And if you have a variety of loans, see whether your credit rating is high enough to allow you to consolidate them in one place at a lower repayment cost. If you have large outstanding sums on credit cards charging the standard high interest rates, look around for the best 0% deals that you can transfer outstanding balances to.

  1. Reduce your outgoings

While you are sorting out your finances, it’s a good idea to get your other household expenditure in order. Do some research to find out whether you can reduce your utility bills, as well as your telephone, broadband and TV packages. Comparison sites are a good place to start.

It’s impossible to know for sure whether interest rates will go up in November but it’s looking more likely now than not. Either way though you’ll certainly deserve to give yourself a pat on the back if you get your finances in shipshape order before then.

If you’d like any further help or advice, be sure to get in touch with your usual THP contact. They will be more than willing to point you in the right direction.

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