Article by Justin Basini
CEO & Co-Founder, ClearScore
The Bank of England raised interest rates from 0.1% to 0.25%. In a move that was widely expected to be delayed until next year, the UK was the first major economy to increase its rates.
When big things happen that affect our financial lives, I like to share some thoughts on what you can do to respond and prepare your finances. This isn’t advice, but information for you to think about:
Interest rates are almost certain to rise throughout 2022. At over 5%, inflation (how much things go up in price) is high. The Bank of England uses interest rates to control inflation. Yesterday, they showed that controlling inflation and keeping the cost of living stable is more important than protecting the economy from potential shocks such as the rise of the Omicron variant.
Banks are now very likely to try and take advantage of rising interest rates by passing on this increase to people borrowing money, rather than to those saving money. This means that the cost of borrowing could go up. I have my mortgage with Barclays and yesterday at 4.54pm, I received a text saying the interest rate on my mortgage was going up – pretty quick work! Needless to say, I didn’t receive a similar text message from the bank with whom I have my savings.
Borrow better – look at your credit accounts now. If you’re paying interest on your credit card, consider shifting your balance to a balance transfer card. Some offers on ClearScore at the minute give you almost three years of 0% interest for a 1.5-3% balance transfer fee. If you’re planning on buying something big, getting a new card with a 0% purchase rate could be a smart move before interest rates rise more. Take a look at your offers.
Don’t pay the standard variable rate on your mortgage. Mortgage rates are going up, but there are still some great deals out there. If you’re on a standard variable rate (SVR), then you should see whether you could save by remortgaging. I’ve just remortgaged, and knowing my interest rate is locked in for the next few years has given me great peace of mind.
Make sure you can afford what you borrow. While your credit score shows how likely you are to repay by looking at your credit history, your new affordability score indicates whether you'll be able to repay based on your income and spending. This helps you know where you stand when it comes to borrowing. And just like your credit score and report, it’s free, forever. Activate your affordability score.
Use the power of your bank account. When you share your data with the lenders on our panel, they get a clearer picture of your income and spending. This gives them more confidence in your financial position, and will result in them giving you better offers that save you money. Link your bank accounts.
Stay calm and stay safe. There’s no doubt we’re living through strange times. But doing a bit of research and looking at your money habits can help you take control of your finances and get ahead in the new year.
Call Mortgage Tree to review your mortgage and explore what new mortgage offers are out there.