How would an interest rate rise affect you?
The Bank of England (BoE) Base Rate has been held at 0.5% since March 2009 and they have previously indicated that they will not consider a rate rise until the UK unemployment rate is below 7%. Even then the BoE has announced that a rate rise isn’t guaranteed so we can all relax and worry about it in a year or so, right? Well, no.
It’s all well and good that the rate is unlikely to rise in the short term but it is essential to consider the effect of a rate rise on your finances before making any decisions. Variable mortgage rates tend to increase directly in line with the BoE base rate and this in turn increases the monthly mortgage payment. A 1% rise in interest rates will add an extra £83.33 per month onto a £100,000 mortgage. If this would seriously affect your monthly budget than a fixed rate mortgage may be a better solution for you.
Bond investments are also affected: as interest rates rise, bond prices go down in order to bring the rate of income they pay back in line. Businesses are also affected by rising interest rates in the form of higher borrowing costs, which can ultimately hit the share price and have a knock-on effect across your investment portfolio. As usual keep an eye on your long term goals and assess if you are still on track before making any decisions in any circumstance.
From Acorns Financial Planning Ltd are based in Tyrone, Mid Ulster and provide a comprehensive Financial Planning service to both personal and business clients across Northern Ireland and the UK.