What do rising interest rates mean for savers and mortgage seekers?

There are fears many could struggle with their mortgages if interest rates continue to rise.

Interest rates have risen to 3%, the highest rate in 14 years and the subject dominating the headlines this week.

On the surface it appears to be good news for savers and bad news for many people with mortgages, especially if their fixed term rate deal is set to expire and they need to go on to a variable rate dictated by whatever their lender says.

Following the Mini Budget and the wobbly market reaction in its wake, forcing the BoE to step in, general interest rates on government Gilt bonds are now lower than they were then, so that is a step in the right direction and a relief to the markets too.

We must remember though that interest rates have been artificially low for a very long time and you could argue this is simply the economy returning to a more natural state.

There is no other way to slice it – these could be a difficult few months for those with mortgages or those seeking mortgages.

Easier said than done perhaps but it would be advisable to hold fast if you don’t need to move home right now, whether you are looking to buy your first or up-size.

The estimated 2million homeowners on variable rate mortgage deals, such as base rate trackers, have seen an almost immediate rise in their monthly repayments following the recent rise. As an example, a tracker rate rising from 3.5% to 4.25% will cost around an extra £80 a month on a £200,000 loan.

It is also worth bearing in mind that the artificially high housing prices are starting to wobble too and show every sign of slowing, so unless you can stand to lose money, that is another good reason to wait.

Some forecasters are suggesting the BoE base rate could rise to 6% by next year.

That is potentially good news for savers. Or is it? Don’t forget that with rising inflation (currently at 10%) that ‘extra money’ you’ve ‘saved’ isn’t necessarily going to go as far as you might have thought it would.

So if you have money to invest, whether your own savings or an inheritance, instead of heading straight to the nearest bank to deposit it in a cash ISA, it is worth considering other forms of investment that will quite possibly give you a better return potential.

But that is where you need proper independent financial advice – and where we can help of course! Please do get in touch with us for a no-obligation chat is that is something you are considering – we do this every day, after all, and the last thing we want to see is people making hasty investments without being fully aware of every aspect.