How to get set for interest rate rises
A watched pot never boils, they say.
We've been watching interest rates doing nothing on the back burner for so long it's tempting to think they're never going to bubble up.
But rate rises are on the way.
When, is a subject of much speculation. Some commentators are nailing their predictions on November. Others believe an increase is more likely in early to mid-2015.
At some point - this year or next - many of us will face the prospect of paying more for our mortgages.
We need to start planning for that possibility now, says mortgage specialist Tina Hayton-Banks from Nottingham Mortgage Services (NMS) - a subsidiary of The Nottingham.
"We've had a massive period where rates have been very low and very benign - and people have taken advantage of that," says Tina. "At some point, rates are going to increase. Can you maintain your lifestyle if rates rise, or does something need to give? Can you get a better mortgage deal? Is there a product that can give you more security in terms of your monthly repayments? You need to be aware and stay in control."
Here are Tina's tips for staying in control:
Get reacquainted with your mortgage
Many of us won't have paid much attention to our mortgages in recent years. Interest rates didn't move, our unchanging monthly repayments were direct-debited, and that was that. Those days are coming to an end. If the Bank of England (BoE) raises the interest base rate you need to understand how that might impact on your mortgage. "If you have any doubts about what kind of product you're on you should contact your lender," advises Tina.
Consider whether your current mortgage is right for you
Lots of us will have standard variable rate (SVR) mortgages - in some cases because we were automatically transferred on to them when our fixed rate or discount deals ended. SRVs are attractive while interest rates remain low and stable. When rates begin to climb they can bring uncertainty to our finances. If the BoE raises rates (by 0.25% or 0.5%, for example) it does not automatically follow that your lender will do likewise. Some lenders may choose not to pass on a rise to their SVR customers - at least in the short term. Others may increase their rates more than the BoE. Variable rate mortgages will still be the best option for lots of customers. Others may need or want the security of a fixed rate mortgage which will keep their repayments at a set level, for a set period of time, regardless of the BoE base rate.
Check your finances
Look at your incomings and outgoings. How much spare cash do you have at the end of every month? Online budget planners can help you with this. Calculate how much different rate rises might add to your monthly mortgage repayments. Think about how you would manage if your mortgage costs increased by £30, £50 or £100 a month. Would you be able to afford them?
Consider cutting back your spending now
If you're already on a tight budget, look at where you can save money now before interest rate rises begin to bite. Do you really need satellite TV? Is your golf club or gym membership an essential? Consider getting advice from a money information or debt advice agency. They might be able help. Don't wait until you're in difficulties before doing something.
Have a conversation with your lender
Talk to your lender sooner rather than later. "Find out what options are open to you," says Tina. "You might be able to move to another product offering more security of payments - a fixed rate mortgage, for example. You might be able to extend the term of your mortgage to reduce your monthly repayments."
Don't be afraid to switch
If your current lender can't offer you a competitive mortgage deal that meets your needs then look elsewhere. Whole of market mortgage broker NMS has impartial advisers who can search thousands of different products to find the deals that best match each customer's circumstances and requirements.