A rise in interest rates may be on the cards sooner than expected, and is set to affect the fortunes of millions of savers and borrowers across the country when it happens. Minutes of the Bank of
Meanwhile, for the average man (or woman) on the street, a rate rise, even a small one, could potentially mean an increase in monthly mortgage costs, a better deal on savings rates and a change in the returns on an investment portfolio. But do you need to act now to do something about it?
The Clays are not alone: increasing numbers of people are looking at five-year fixed-rate mortgages. "If your main worry is an increase in monthly payments when rates rise and you think you will be in your property for at least five years, a five-year fix is a good idea," says Andrew Montlake of mortgage brokers Coreco. "In years three to five of that mortgage you will almost certainly be looking at that deal and thinking what a great idea it was."
For these people, the news on rates is good. The price of fixed rates has been falling and last week Woolwich launched a five-year fix at below 3%, the first time such rates have been that low this year. The 2.99% deal is only available to those borrowing pounds 500,000 or more and the maximum loan-to-value is 65%. For those borrowing less, the lender charges 3.09%.
The best two-year fixed rates, by comparison, are around 1% below those of the five-year fixes. These include a 1.94% fix from the
So should you be opting for a fixed rate? It depends on your current mortgage deal, say the experts.
"People on lifetime trackers below 1% are not going to give those up," says
However, the consensus appears to be that anyone on their lender's standard variable rate, which is the rate you end up paying when your mortgage deal comes to an end, could be better off remortgaging now rather than waiting.
Savers have been enduring abysmally low interest rates, with seven years of a record low bank base rate. Coupled with this, the Funding for Lending scheme, introduced by the government in 2012 to give banks and building societies easy access to cheap money, has meant that many of these institutions are no longer interested in savers' cash to balance their books. A rise in interest rates should, in theory, herald a turning point in savers' fortunes. But will it?
"I think a rate rise for savers is a bit of a red herring," says
Given this, Hannums suggests savers should spread their money among different types of saving products but shouldn't be put off tying money into fixed-rate products.
"If we were in the savings market we were in a few years ago, yes, I would say avoid tying into a fixed rate just before rates are predicted to rise," she says. "But now that we are seeing rate cuts everywhere that are likely to continue, you can't ignore the peace of mind a fixed rate gives."
For those who are after short-term security,
The best variable-rate Isas pay between 1.5% and 1.75%, according to Savingschampion.co.uk.
There is one product designed specifically with the base rate in mind - though it does require a minimum investment of pounds 25,000, and the interest rate is not that great unless there are multiple base rate rises. The Base Rate Plus from Investec bank locks saver's money away for three years but guarantees a minimum return of 2.6% and pays 1% above the Bank of
When rates go up, it typically spells bad news for corporate bond holders as when rates rise, bond prices tend to fall. You may not even know you have corporate bonds if they are part of your pension fund; or you may have them as a separate fund in a portfolio.
However, given rates have yet to rise and, when they do, it is predicted to be by a small amount,
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