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Households need to prepare now for the 'new normal' of higher interest rates

​The Bank of England Monetary Policy Committee has today voted to increase interest rates to 0.75 percent, its highest level since 2009. 

Jane Tully, director of external affairs at the Money Advice Trust, the charity that runs National Debtline, said:

“Households need to prepare now for what could be the ‘new normal’ of higher interest rates in the coming years. 
 
“Today’s small rate rise will not on its own cause problems for the majority of people, and with most mortgages on fixed rates the full impact on household finances will not be felt immediately. However, we know that even a small increase in costs can be all it takes to push some households with already stretched budgets in to difficulty.
 
“For the first time in nearly 30 years, UK households are now spending more than they have coming in. Combined with slow wage growth and increasing living costs, interest rate rises like today’s will add to the challenges facing the many people already struggling.
 
“With advice agencies continuing to experience high levels of demand for their services, it is crucial that lenders, government and the advice sector work together to make sure people affected receive the support they need.”
 
National Debtline offers free, independent and confidential debt advice online at www.nationaldebtline.org
 
National Debtline’s 5 steps to deal with an interest rate rise
 
1) Prepare a household budget
If you don’t already have a budget, there has never been a better time to take this step – which is probably the single biggest thing you can do to start to get to grips with your personal finances. Look at what you have coming in each month and what you need to spend your money on – remembering to include annual costs like car insurance by dividing the annual cost by 12.
 
2) If you have a mortgage, consider fixing now
This is the second of what could be a number of further rate rises, and so if you are mortgage payer and are on a variable or tracker rate, now could be a good time to switch to a fixed deal. Everyone’s circumstances are different and it may be that you want to seek professional advice.
 
3) Deal with existing debts now
If you are already in arrears with your mortgage, rent or any other kind of debt, don’t delay dealing with them. With an interest rate rise you could find your costs increase and in some cases, your existing debts become more expensive, and so it is important to reduce them when you can.
 
4) Maximise your income and re-examine your costs
Some advice that is always worth considering is to find out if you can maximise your income. That could include making sure you are claiming all the benefits to which you are entitled, making sure you are paying the right tax or looking at the hours you work. At the same time, if you are worried, re-examine your costs to see if there are any savings you could make.
 
5) Seek free advice if you are struggling
Remember that you don’t need to do any of this alone. If you are worried about how interest rate rises might affect you or if you are struggling to cope with existing debts or unpaid bills, seek free advice from a charity-run service like National Debtline as soon as possible.
 
The Money Advice Trust and Building Societies Association have produced a leaflet designed to help and support borrowers who may have trouble paying their mortgage. The leaflet is available here.
 
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