After several years of recovery and a much brighter economic forecast, the Bank of England are now considering raising interest rates. How will this affect you?
The Bank of England Monetary Policy Committee are responsible for setting the interest rates in the United Kingdom. At a recent meeting, 2 of the 9 members voted for a rise in interest rates between Aug 2015 and Dec 2015. This is a clear sign that the day of rising interest rates is edging closer.
Why do we need to raise interest rates?
We cut rates so more money entered the economy. However, if there is too much money flying around a lot of bad things happen! One of the most important is inflation. The cause of inflation is too much money chasing too few goods. This leads to a rise in prices. (more on this in a later post!). Manipulating interest rates helps combat and control inflation keeping everything at a sustainable level.
So what are the effects of raising interest rates?
Rising interest rates will increase the cost of borrowing, payments on loans, mortgages and anything bought on credit becomes more expensive. If you are renting, make sure you are know whether or not your landlord can further his/her increased costs regarding the property onto you! The economy will experience a fall in spending as people are more likely the keep the money in savings accounts as it is now worth doing.
Since the first whispers of a rise started circling, there has been a huge spike in the number of mortgage deals being completed. First time buyers are rushing to banks to try and make the most of the cheaper mortgages. It has been the busiest fortnight of mortgage transactions in 5 years!
The window is closing on cheap credit, those who wait too long will miss out. However, don’t panic and rush into making a snap decision and burdening yourself with debt if you simply aren’t ready. Once interest rates rise, it will be a slow and gradual increase meaning there will still be excellent deals to be had. If you already have a mortgage, a loan, an overdraft etc, do you best to pay off as much as you can before the rise because once it kicks in repayments could reach unaffordable levels.
The most important thing you can do at this current moment in time is look into any debts you have, any purchases you will be making on credit and really shop around for the best deal. Some banks are already increases the rates they lend to customers in anticipation for the rise.
It’s time to take charge and responsibility for your finances, the ‘bury my head in the sand’ technique could leave you in big trouble. Calculate exactly how much your repayments would be if rates rise to ‘X,Y,Z’ levels and make sure you can afford it. If you can’t, shop around and look at all the options available to you to make sure you financial wellbeing is safe. Take control of your finances now and ensure long-term prosperity!