Caution! A rise in interest rates could be ahead… Michael Lansdell

  Posted by: Dental Design      4th January 2018

In August – against all expectation – there was a strong hint that a rise in interest rates could be on the cards. The hint came when three out of the eight people on the Monetary Policy Committee (MPC) who have the responsibility for setting the rate voted for an increase. A three-to-five minority might not sound like much, but no one expected anyone to support a change to the base rate of 0.25%, fixed since 2016.

The MPC meets eight times a year to set an interest rate it judges will enable the inflation target to be met. Whether it happens before the end of the year, or we have to wait until 2018, it would be good idea to think about the potential impact of a future interest rate rise will have on you and your business, in order that you get yourself organised.

If you are on a variable rate mortgage, you will be glad if interest rates stay as they are. But what will you do if rates rise – do you have measures in place? Would it be prudent to switch to a fixed-rate deal now? If you are looking to buy a new property – either residential or business – it is worth considering how a potential rate rise would affect the kind of mortgage that you choose. As a side point of interest, in July the number of people re-mortgaging was the highest since 2009, with customers attracted by low rates.

If you are a saver, the idea of a possible rise in interest rates will be greeted with (cautious) optimism, especially if you have a deposit account or cash ISA. Low rates have meant that many savings products have fallen in popularity. Only a few years ago you may have enjoyed a 1% interest rate on your savings account and now it’s likely to be around half that. According to one report, Cash ISAs saw a whopping £20bn fall in the amount invested in them in just 12 months. Low interest rates certainly make these kinds of products less attractive and we also have to factor in changes to personal savings allowances since 2016 (the first £1,000 of interest that an individual receives from savings is tax-free if they are a basic-rate taxpayer; the threshold is £500 for higher-rate taxpayers). Of course, many of you might be putting your money in other places but easy access Cash ISAs are great products to use to get into a regular savings habit (they are good for younger savers in your family, for example) and it is a shame that they are becoming less popular. On the other hand, the fixed-rate savings bond market – that often pay way above the Bank of England base rate – has remained robust.

This is not a time for rash decisions or fast action. Pundits are predicting interest rates are likely to rise, yet we have seen repeatedly how financial experts have been caught out by unexpected turns of events. The general economic outlook remains uncertain – this is a mantra that bears repeating – and making too many predictions would not be wise. Hardly anyone predicted that inflation would rise again in May, for example. The US central bank did increase short-term interest rates for the second time this year, but that had been well flagged in advance so therefore came as no surprise. Before you do anything, get advice from professionals with an in-depth knowledge of the dental sector. They can help you decide if you need to look at new products – re-mortgage, for example – or if and how you should move you money around to give you more of a buffer should things change.

To find out more, call Lansdell & Rose on 020 7376 9333,
Or visit www.lansdellrose.co.uk

UK Finance. Remortgaging strengthens in July, 12 September, 2017. Link: https://www.ukfinance.org.uk/remortgaging-strengthens-in-july/ (accessed October 2017).
Guardian Money. Popularity of Cash ISAs collapses in space of year, 31 August 2017. Link: https://www.theguardian.com/money/2017/aug/31/popularity-cash-isas-collapses-tax-rule-interest-rates (accessed October 2017).

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