Anyone on the standard variable rate should switch to a fixed rate deal now to lock in a low interest rate for several years, according to Annabelle Williams of Nutmeg, an investment firm.
She said: “You can save hundreds of pounds each month by doing this. Over the course of a mortgage having a lower interest rate, even by a small difference, can mean paying tens of thousands less for your home.”
Those who do switch to a fixed rate mortgage should remember that shorter-term deals such as two-year fixes tend to have the lowest rates while 10-year fixed rates tend to be higher.
“If you leave the deal before it ends you’ll pay a penalty charge so weigh up whether you want to stay in your current home or move, and if you want to buy another home in the next couple of years you could move onto a two-year fixed rate mortgage and pay a really low amount of interest,” she said.
Homeowners planning to remortgage may have little time to act, Sarah Coles of Hargreaves Lansdown, the stockbroker, said. Banks will not wait for interest rates to rise before new mortgages start getting more expensive and will price it in early.
“It means it’s well worth shopping around for a new mortgage sooner rather than later. Right now you can still find incredibly cheap mortgages, so it’s a great time to start looking,” Ms Coles added.
How will rising rates affect my savings?
The good news is that saving rates could be drawn out of their record low rut. No widely accessible savings account has been able to undo the eroding impact of price rises by outpacing inflation. This means cash savings pots reduce in real terms under the current rates.
Most high street bank accounts pay as little as 0.01pc interest. On a balance of £50,000, this would earn just £5 a year. Even savers who managed to fetch the best deals face losing hundreds of pounds.
Rising interest rates could push savings rates higher, making it more appealing to set money aside, though it may take a long time to materialise as, unlike mortgage cost rises, it comes with a delayed response, Mr Geddes warned. “Interest rates on savings are unlikely to rise as fast as mortgage or other rates,” he said.
Anyone in an easy-access savings account with a high street bank should not wait for rates to rise before switching to a more competitive alternative, Ms Coles of Hargreaves Lansdown said.
It can be tempting to wait for a rate rise to get a better deal if you are planning to put money into a fixed rate account but this could prove costly. Ms Coles said:
“The risk is that you end up waiting longer than you expected, while your money sits somewhere far less rewarding. Alternatively, it may make sense to fix for a shorter period. Bank of London and the Middle East is offering 0.85pc over six months and Gatehouse Bank will pay 1.51pc if you fix for a year.
Will my debt get more expensive?
Yes, higher interest rates also mean that payments due on credit cards and loans can be expensive. Ultimately, it means that it costs more to borrow from banks and high street lenders tend to be quick to pass on those costs.
Savers with cash set aside should prioritise paying off high-interest debt before rates increase and the cost of their loans rises.
If you have outstanding debt on a credit card it’s worth transferring to an interest-free deal, according Ms Williams. It is possible to shift your balance to an interest-free rate that runs for around two years, she said.
“That gives you loads of time to pay off the debt provided you make a plan and set up a direct debit to pay more than the minimum repayment amount each month.”
Big purchases, such as buying a car or home renovations are often left until Spring, but waiting that long could cost you, Ms Williams said. “If you’re planning something which requires hefty expenditure now would be a better time to take out a loan while the rates are still good.”
Read More: Interest rate rises are coming – here’s how to protect yourself