What rising interest rates might mean for you

What rising interest rates might mean for you

There weren't too many surprises when the Bank of England chose to maintain the base rate of interest at 0.5% for the 78th month running on 6 August 2015, but there were pointers that a rise in rates is now firmly on the horizon.

Maike Currie, associate investment director at Fidelity Worldwide Investment, explains her view of what rising rates might mean for you.

What does it mean for families?

"As rates rise, they will impact families differently, depending on the size of their borrowings and the terms of their mortgage. Younger households - those in their thirties and forties - have done relatively well from the prolonged period of lower interest rates. But this has also left many overburdened with high levels of mortgage debt.

"In contrast, the older generation of homeowners is in a much better position, having benefited from a steady rise in house prices."

What does it mean for retirees?

"One of the casualties of lower interest rates has been safer streams of interest income. Retirees relying on their savings to supplement their pension income have felt the impact of low interest rates hardest. Many, no doubt, will greet an interest rate rise with relief.

"Other good news for retirees is that annuity rates which have been at historical lows could improve with a rise interest rates, which means those planning to retire soon could secure a higher income.

"Less positive is the possibility that retirees could see a fall in the value of their pension funds. This is because when investors near retirement age money is often automatically moved out of the market and into bonds, as a way of de-risking pension savings. Bond prices tend to fall when interest rates rise, in order to increase the yield and attract buyers."

What does it mean for investors?

"Investors could very likely see rates remaining at 0.5% until March next year, which will mark the seven-year anniversary of interest rates remaining at this 'emergency level'. When rates do eventually rise, expect a long, slow slog to 'normality'. Despite being dubbed the 'unreliable boyfriend' for his mixed messages on interest rates, Bank of England governor Mark Carney has made it very clear that a rate rise will be 'gradual and limited'."

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Your Comments

"In contrast, the older generation of homeowners is in a much better position, having benefited from a steady rise in house prices."

What a stupid comment!

If this were true, then you only benefit from this when either:
1. you sell
2. you die - but then you don't benefit, your family does.

If the older person has a mortgage, then they may be in the same position as those who are younger with a mortgage.

And as for the "steady rise in house prices", my house was worth £120,000 a few years ago. But only 2 simliar houses have sold near me; one for £85,000 and one for £80,000.

Who writes this rubbish!

interest rate increases will make everyone worse off.
House prices and values will fall.
Rents will go up and will in anycase owing to the government landlord bashers,by not treating buy to let as a business.(I am a landlord)
People will spend less and of course have less money to spend.
The banks are ripping us off by not paying more interest now,they charge well over bank rate for loans and mortgages and credit card interest rates are obcene.
The bank rate even if it goes up should not see SVR go up or indeed mortgages,rates charged are well over bank rate and many mortgages are over 4 times bank rate with many 6 7 or 8 over ! so even when rates go up banks should think really hard .
Competition should increase from banks.
People will spend less,which will mean less tax and vat for the taxman.
The country is not ready for an interest rise in my view for a very long time yet,if we get one soon it will be a big mistake and backfire for banks and the government.
Seems to me we are just following USA as this country always seems to do and has no mind of its own !

I agree that interest rates will catch a section of society out as we have become used to low rates for so long. Having said that, we are told that rates will increase slowly and in small amounts. 
Remembering my my parents concerns when interest rates jumped to over 13% in the 80's, personally I've always looked at how much I'll be paying at a 5%+ interest rate to ensure we can afford the payments.