Angus Brewer Business & Tax Consultant

The base interest rate has been increased to 0.5%.  What next?  Does this affect me?  Does this affect my business?

A rise in interest rates does have some effect. We’ve put down a few points that you need to know for both you and your business.

Here are 2 key things you need to know personally:

Increase in mortgage payments

If you have a variable mortgage, the monthly repayments will increase by around £200 a year per £100,000 of outstanding mortgage.  For most banks/lenders this will take place in the next month or so (check out what your bank is doing here).  If you are currently on a fixed mortgage, you need to budget for a jump in monthly repayments once you come to renew.  Plan ahead.  Those of you looking to take out a new mortgage or increase their borrowings – be realistic and sensible in what is affordable – calculate some scenarios based on further interest rate increases – will you still be able to live within your means if this happens?

Savings

A rise in increase rates will be good news for savers.  The increase in interest rates for savings usually follows a little slower than the lending rate increases.  You may want to use it as an opportunity to look around at other savings options and accounts available.

 

Here are two key things you need to consider for your business:

Review your customers and your customers' customers

Will your customers’ spend be affected by the fact that the cost of finance has increased?  This is particularly relevant if you are dealing with large contracts, or high-value capital items.  Then take a look at your customers’ customers – will the ultimate customer demand be affected, and therefore adversely affect your customers spend with you?  For example, if you are supplying or serving the retail industry – the ultimate consumer’s disposable income is likely to be squeezed by the increase in debt repayments, with potentially a decrease in retail spending, therefore will this affect the retailers’ spend with you?  Also are you rigorous on your credit checks and credit limits – the increasing debt commitments could impact your customers (or their customers) to the extent they may not stay in business

Increased mortgage commitments

Update your forecasts and live cashflow modelling to allow for increased monthly commitments and increased interest cost/expense.  If you are looking to refinance your business or take on additional finance for expansion, you need to consider all options of finance and ensure you proceed with something that is commercially and financially viable.

There are also many other factors which could be affected by an increase in interest rates – such as house prices, construction, inflation, unemployment, economic growth and exchange rates, to name a few.  However, with a relatively small increase in base interest rate, it will likely be some time before the effect of this is filtered through, and could be negligible in some of these areas. 

Probably the more uncertain thing right now is the possibility of a ‘no-deal’ Brexit  – this could have a lot more effect on all these things, than a rise in interest rates!  Read more here on what you should be thinking about.