Even if you’re not a homeowner, you’ve probably noticed that the Bank of England raised interest rates in both December and this February. Given the state of inflation, there may well be more rises on the cards and they may be sooner rather than later. With that in mind, here are some thoughts on how to plan for a situation when interest rates are trending upwards.
Take care of your credit record
Your credit matters regardless of what happens with interest rates. The higher interest rates go, however, the more important it is to take good care of your credit record. This is because prices are going to rise across the board (although some prices may rise more than others). It, therefore, becomes even more important to qualify for the best possible deals.
If you manage your money responsibly then, for the most part, your credit record should take care of itself. With that said, however, it’s advisable to check it at least once a year for mistakes. It’s better to check it more often (ideally once a month). This will not only ensure that mistakes are caught quickly but also protect you against identity theft.
Review your consumer debt
Regardless of whether you’re already a homeowner or a potential buyer or plan to be a tenant for the foreseeable future, it makes sense to get on top of your consumer debt. Again, this applies regardless of what’s happening with interest rates. It is, however, most important when interest rates are rising and/or high.
There are two big differences between consumer debt and mortgage debt. The first is that consumer debt tends to have much higher interest rates. The second is that it tends to be much easier to move.
For example, if you want to transfer a credit-card balance, you generally just need to fill in a form and get an approval. If, however, you want to remortgage, you need to go through a much more thorough assessment with more paperwork. You are also likely to need your house to be revalued and this will come at a cost.
This means that you should generally review your consumer-debt products at least once a year if not once every six months (especially if interest rates are rising).
Make sure your mortgage never falls onto the SVR
When you take out a mortgage, you sign up for a deal that lasts for a certain period of time. Once this deal runs out you will be placed onto your lender’s standard variable rate (SVR). This could be a lot more expensive than even an average deal let alone a market-leading one.
As a result, letting your mortgage fall onto the SVR is one of the worst mistakes you can make, even when interest rates are low. When interest rates are high, it’s a lot worse. Possibly the worst situation of all, however, is when interest rates are rising. This puts you in a situation where you know you could probably have got a (much) better deal if you had just been quicker.
If you’re put off remortgaging out of concern that your finances will have been too badly damaged by COVID19, then at least speak to a mortgage broker. Remember, if it’s been a while since you last took out your mortgage, there’s a good chance you’ve built up a decent bit of equity since then. This could be enough to secure you a new mortgage.
Consider making overpayments
Your ability to make overpayments will depend on both your mortgage and your circumstances. If, however, you are able to do so, then it’s well worth considering. Remember only to overpay money you can afford to be without. If in doubt, keep the money in cash to use as you need it. You should get a somewhat better return on it.
It's a great time to review your mortgage, so please do get in touch.
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