Base rate increase – what you need to know – Richard Lishman

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  Posted by: The Probe      9th November 2017

The Bank of England’s decision to increase the base rate from 0.25% to 0.5% has been a long time coming. Now, that it’s finally here, here are the main areas in which you may either benefit or feel the pinch.

If your long-term goal is to become a practice owner, there’s no need to be put off by the interest rate rise, as the market is unlikely to be affected in terms of goodwill and sale price. What it will affect, however, is the interest repayments on any future loan from a lending bank. With the rate as it is now, a £500,000 ten-year practice loan could cost you an additional £10,550 over the complete term and £1,055 annually. As the base rate increases over time, so will your repayments, so be sure to factor in these costs in your financial forecast when calculating your affordability.

Existing practices could also be affected by the rate rise, because if patients’ outgoings increase due to a rise in mortgage, loan or debt repayments, they may be less inclined to pay out for treatments that are classed as non-emergency. So if you own a practice, be aware that if your patients are feeling the pinch, you might too.

From a personal standpoint, your mortgage payments could be affected by the rate rise depending on the mortgage type. Tracker mortgages will incur the biggest increase to payments as they are directly determined by the base rate. For example, if you were paying 2% interest on a 25-year £250,000 repayment, your monthly instalment would rise by £30. Provided that you are one of the 57% on a fixed-rate mortgage, however, you won’t need to worry just yet, just be aware of the implications when remortgaging.

If you are yet to step on the property ladder, there may be a few issues surrounding affordability if existing best-buy deals are replaced by high price ones. Where fixed-rate deals are concerned, the ‘revert to’ rate that activates at the end of the two-year term is likely to rise across the board, so it is wise to go in with an open mind and hope that cheaper loans are available when the opportunity arises to remortgage.

Do you have savings? If so, the outcome of the rise will be a lot rosier. Say for example you have £10,000 in your Individual Savings Account (ISA) you are likely to see your return rise from £30 per annum to £55. Naturally, the more you make use of the available £20,000 Annual Allowance the better your return, but if you have other assets be sure to seek expert advice on the best way to manage your investment portfolio. As for your pension pot, the new interest rate is likely to simultaneously ignite a recovery in annuity rates and reduce deficits in company pension schemes, so either way you should be better off.

To find out more about how the interest rate rise could affect you, get in touch with the Independent Financial Advisers at money4dentists.

For more information please call 0845 345 5060, email info@money4dentists.com or visit www.money4dentists.com


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