Interest rates to rise in 2016
There is a growing level of acceptance amongst many economic advisors and experts that interest rates are likely to rise at some point in 2016. It may be difficult to get agreement as to when the Bank of England is likely to raise interest rates but a sizable number of professionals employed to monitor the market and provide information about what is likely to happen suggest that interest rates will rise at some point in 2016.
With this in mind, what does it mean for the average person? There is a lot of talk linked with changing interest rates but the majority of people are only interested in what impact it will have on their life. This is why we have outlined aspects of the impact that rising interest rates can have.
The cost of borrowing will rise
A rise in interest rates means that the interest payments for loans and credit cards will become more expensive. People who have loans and debt will find that they have to spend more of their disposable income on servicing these debts. This will impact on people, making them less likely to borrow and it will impact on the amount of money that a lot of people have to spend.
Mortgage interest payments will rise
Anyone that has a mortgage that is linked to the Bank of England interest rate will find that a rise in interest rates will lead to them having to pay more each month. Someone who has a £100,000 mortgage will find that a 0.5% increase in interest rates will see them having to pay an additional £60 per month in mortgage payments. This can seriously impact on a family’s ability to spend or save because most people consider mortgage payments to be the most important payment they make each month.
A rise in how much people have to pay on their mortgage will always make some people more cautious or nervous about taking out a mortgage in the first instance. It may also mean that some people will look to downgrade their property in the hope of finding a more affordable mortgage or mortgage rate. If the expected interest rate changes are only for a short-term, it may be that people will be able to ‘ride it out’ but if the changes are expected to remain in place for a sustained period of time there will be an impact on the property market.
There will be an added incentive to save rather than spend
If you have disposable income and you don’t have debts to contend with, you’ll find that there is a stronger incentive to save your money rather than spend it.
Increased rates impact on the value of the pound
This is the sort of impact that many people think doesn’t affect them but the nature of the pound does impact on people’s lives. A stronger pound means that you can buy more foreign currency if you are looking to travel. There is also the fact that a stronger pound will reduce the number of exports from the UK while increasing imports, which could ultimately impact on people’s jobs but this would be a very long –term impact of a change in interest rates.