Many of us, not all of course, have enjoyed a comfortable lifestyle over the last 5 years. For those with high Fixed Rate mortgages ending in this period will have switched to a low variable rate and benefitted from significantly lower mortgage payments.
Purchases on Credit Cards will have been done so at relatively low rates and for many of us life after the recession has recovered nicely. However, with Interest Rates likely to rise in the near future what can be expected particularly for those going through divorce?
Increased Mortgage Payments: The most obvious change will be increased mortgage Interest Rates and therefore higher mortgage payments. Unfortunately, this means that households will have less disposable income each month. More importantly from a lending perspective the amount individuals are able to borrow may reduce and we could also see mortgage lenders tightening up their lending criteria especially where affordability is concerned. With a reduction in affordable borrowing, individuals going through divorce may need to lower their expectations where prospective properties are concerned, potentially compromising price, size and/or area. For those who already have a mortgage and are currently on a Fixed Rate any increase on the Bank of England Base Rate will not affect them. However, Fixed Rate deals do not last forever and when the current deal ends preparation should be made for an inevitable rise in mortgage costs. For those on Variable Rate mortgage deals an immediate increase in payments will occur.
Rent: Similarly, if landlords increase the cost of rent as a result of an interest rate rise, would the property remain affordable? If not, would moving somewhere else be a good option?
Moving Costs: Once the divorcing individual has found a property to rent or buy, moving costs must also be considered. APR on finance, Credit Cards and loan payments will increase making that dream kitchen, new fridge or sofa more costly.
Credit Cards: If credit card balances are cleared before the end of the month then a Bank of England interest rate rise is unlikely to have any effect. However, if the individual is regularly paying off the interest, an increase in the credit card’s APR will be noticed.
Payday Loans: With money tight and mounting legal costs it might be tempting to use payday loans, however, not only will the APR on these loans increase but with one of these noted on credit records, the individual will be declined by ALL mortgage lenders.
Legal Costs: With increased outgoings and household expenditure there will be less money available for payment of legal fees. Where loans have been obtained as payment for costs related to divorce, the repayments are likely or be higher and/or take longer to pay off.
Maintenance: For those seeking maintenance payments for themselves or their children, it is likely that the ex-husband/wife whom they are claiming the maintenance from will have less money available also.
Savings: Interest rate rises are not all doom and gloom, however, as savings rates are likely to increase and give a higher rate of return on any money you put into an ISA or savings account. If you have a fixed rate savings account then obviously a bank rate increase won’t make a difference until the deal ends.
Although a Bank of England Base Rate rise will be minimal and the increase in all of the above costs will not be significant, for those going through divorce and perhaps feeling the full weight of financial responsibility alone for the first time, it could have a big impact. Understanding the effects of these changes before reaching a financial settlement is paramount and individuals should always seek financial advice.