Over the last year, interest rates have increased from historic lows. Fixed-rate mortgage payers that have been shielded from the rises so far could find their outgoings rise if their deal ends in 2023. 

The Bank of England increased its base interest rate several times over the last 12 months to tackle high levels of inflation.

For savers, it’s been good news, as interest rates on savings accounts have started to rise after more than a decade of being low.

However, for borrowers, it means the cost of debt has climbed. From credit cards to loans, the amount you pay to service debt has probably increased. As a mortgage is often one of the largest loans you’ll take out, even a small change to the interest rate could affect you. 

57% of fixed-rate mortgages ending have an interest rate below 2%

Data from the Office for National Statistics suggests that 1.4 million households will need to renew their mortgage deal this year. 

Among the fixed-rate deals coming to an end, 57% have an interest rate below 2%. It’s unlikely you’ll find a new mortgage deal that has an interest rate this low. So, monthly repayments could rise for thousands of households over 2023. 

Let’s say your remaining mortgage debt is £150,000. If you choose a 20-year repayment mortgage, the table below shows how an increase of just a few per cent could affect the cost of borrowing.

Source: MoneySavingExpert

If your mortgage deal is ending, being proactive can help you prepare for the potentially higher costs and get to grips with your budget. 

6 practical things you should do if your fixed-rate mortgage ends in 2023

1. Review your budget

Take some time to understand what rising interest rates will mean for you. Being prepared means the hike in your mortgage outgoings won’t be unexpected. 

2. Decide if taking out a new mortgage deal is right for you

While it can be tempting not to take out a new mortgage deal if there’s nothing comparable to your current one, you could end up paying more.

Once your current deal ends, you’ll usually be moved on to your lender’s standard variable rate (SVR). This rate isn’t usually competitive, and you could save money by taking out a new deal. 

However, there are some circumstances when remaining on your lender’s SVR does make sense. For instance, if you plan to move, you could face exit fees if you choose to take out a new deal. Or, if you want to make significant overpayments, remaining on the SVR could mean you avoid fees. 

3. Decide what kind of mortgage is right for you

Do you want to take out another fixed-rate mortgage? Or would a variable- or tracker-rate mortgage suit you now?

Interest rates may continue to rise over 2023. So, you may choose a fixed-rate deal again. This would mean that your repayments could not increase during the term. However, if interest rates began to fall, you wouldn’t benefit.

In contrast, with a variable- or tracker-rate mortgage, the interest rate could rise and fall. 

Which is right for you will depend on your financial circumstances and priorities. If you want certainty, a fixed-rate deal can be useful, but you should review all your options. 

4. Set out the mortgage term and how much you want to borrow

Usually, each time you remortgage, the term and amount you borrow falls. However, this doesn’t have to be the case.

You may choose to shorten or extend how long you’ll be paying the mortgage. If you shorten the term, your repayments will be higher, but you could be mortgage-free sooner and pay less interest overall. If the cost of living crisis means your budget will be stretched, choosing a longer term could provide more flexibility and lower initial repayments but will mean the overall cost of borrowing is higher. 

You may also choose to borrow more. You could use this money to renovate your home or pay for other expenses. Again, keep in mind that borrowing more against your home will mean paying more in interest, and it’ll affect your repayments. 

5. Search for deals early

You can often lock in a new mortgage deal up to six months before your current one ends.

Searching early means you can avoid paying your lender’s SVR while you find a new deal and it gives you more time to find a suitable option for you. 

6. Contact us

We’re here to help you find a mortgage that suits your needs. If your current deal is coming to an end, please get in touch. We can help you understand which type of mortgage could be right for you and how the rising interest rates will affect your repayments. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Not all mortgage contracts are regulated by the Financial Conduct Authority. 

Think carefully before securing other debts against your home.

You have until 5 April 2023 to make the most of your ISA allowance for the current tax year. If you want to boost your savings or investments, adding more to your ISA could make sense.

For the 2022/23 tax year, you can add up to £20,000 to adult ISAs. The allowance is for each individual. So, if you’re planning with a partner, you should consider making use of both of your allowances. 

ISAs are a popular way to save and invest. According to government statistics, around 12 million adult ISAs were subscribed to during the 2020/21 tax year. In total, the cash value of ISAs stood at around £687 billion. 

If you’ve yet to make use of your ISA allowance for the 2022/23 tax year, here are four reasons you should review your deposits. 

1. You could access a higher rate of interest with a Cash ISA 

If you’re building up your savings, using a Cash ISA could mean you benefit from a higher interest rate when compared to regular savings accounts. 

As interest rates increased throughout 2022, it’s a good time to review if your Cash ISA is still competitive. There may be an alternative provider that offers a higher rate.

You could also choose an ISA with a fixed term in return for a better rate. However, you may not be able to withdraw your savings during the term, so it’s important to consider what you’re saving for.

If you don’t have a Personal Savings Allowance (PSA) because you’re an additional-rate taxpayer or you’ve exceeded your PSA for the current tax year, a Cash ISA can also be beneficial for tax purposes. Interest earned on cash held in an ISA isn’t liable for Income Tax. 

2. ISAs offer a tax-efficient way to invest

For investors, Stocks and Shares ISAs can be tax-efficient. You don’t need to pay Capital Gains Tax on investment returns when investing through an ISA. As a result, it can reduce your tax liability and help your money go further. 

As with any investment, you should invest through an ISA with a long-term time frame and understand what level of risk is appropriate for you. 

3. If you save with a Lifetime ISA, you could benefit from a 25% bonus

A Lifetime ISA (LISA) isn’t the right option for everyone, but it can be valuable in some circumstances, including if you’re saving to buy your first home. 

You must be aged between 18 and 40 to open a LISA and you can contribute until you are 50. You can deposit £4,000 in the 2022/23 tax year and receive a 25% government bonus. In effect, it means you could benefit from £1,000 of “free money” each year. 

However, you will face a 25% charge if you make a withdrawal or transfer the money to another type of ISA before you’re 60 for a purpose other than buying your first home. This means you could lose the bonus plus some of your original savings. So, you should think carefully about what you’re saving for and the alternatives before you use a LISA. 

You can choose a Cash LISA to earn interest on your deposits or a Stocks and Shares LISA if you want to invest. 

4. If you don’t use your ISA allowance, you will lose it

Finally, you cannot carry any unused ISA allowance into a new tax year. If you don’t use it before the 5 April 2023 deadline, you’ll lose it. So, reviewing your saving or investing plans now with this in mind can help you get the most out of your ISA allowance. 

Should you use your ISA allowance to save or invest?

While a Cash ISA can seem like the “safer” option, as your money isn’t exposed to investment risk, inflation can erode the value of your savings over time. As a result, you should consider if saving or investing is right for your goals.

A report in FTAdviser suggests that UK savers storing money in Cash ISAs are experiencing wealth erosion at the fastest pace in more than four decades. This is due to high levels of inflation, which interest rates aren’t matching. The report estimates that when compared to inflation, savers are facing a gap of £26.7 billion. 

In contrast, investing could help the value of your savings keep up with inflation. However, returns cannot be guaranteed and investing isn’t always the right option.

It’s important to set out your goals and how far away they are to understand if saving or investing could be right for you. 

Contact us to talk about how to use your ISA allowance 

If you want to talk to a financial planner about how to get the most out of your ISA allowance, please contact us. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.

The favourable tax treatment of ISAs may be subject to changes in legislation in the future.

When you think about retirement planning, what challenges come to mind? While ensuring you have enough saved and that you don’t run out of money are common concerns, there is one you may have overlooked: changing from a saving to a spending mindset.

To secure your retirement, putting money away has likely become a habit that you’ve embraced for decades. Perhaps you contributed to a pension, made sure your mortgage was paid off, or invested with a long-term plan. These positive habits could have helped you towards greater flexibility and more security later in life.

However, once you retire, it’s not just your routine that changes – your relationship with money may do too.

Rather than building up assets, you’ll often start to deplete them. You may take an income from your pension and use other assets as well. While a happy retirement is what you’ve made sacrifices for in the past, it can be more difficult than you think to start spending the nest egg you’ve created. 

Not switching your mindset could mean that despite efforts during your working life to build the retirement you want, it falls short of expectations, even if you have the finances to reach your goals. 

So, how can financial planning help you change your mindset when you retire?

Financial planning can help you understand what lifestyle you want

When you think of financial planning, it’s probably the money side of things that come to mind first, like managing investments or highlighting potential tax allowances. This is an important part of financial planning, but it’s not the whole picture. 

Effective financial planning starts with understanding what you want to achieve. For those at retirement, focusing on what you want your lifestyle to look like once you give up work is an essential part of the process. Do you envision yourself travelling the world, retiring by the coast, or spending time on hobbies? 

Setting out what makes you happy can mean you feel more comfortable depleting your assets. Yet, a report from Aegon finds that just 1 in 5 people are very aware of the day-to-day experiences that give them joy and purpose. As you get ready for retirement, it can be a useful exercise to think about what you’re looking forward to. 

It’s only once you set out your goals that the financial planning process starts to look at how your assets and actions can help you reach them. 

A long-term financial plan can give you the confidence to deplete your assets

One of the reasons why retirees are often reluctant to deplete assets is that they worry they’ll run out of money. It’s a sensible concern – the decisions you make at the start of retirement could affect your finances for the rest of your life.

Yet, spending too little during your retirement could mean you miss out on experiences. 

A survey from abrdn found that almost half of retirees worry that they’ll run out of money during their lifetime. Despite this, only 1 in 5 people are seeking professional financial advice. A financial plan that’s been tailored to you can give you confidence that you’re financially secure. 

A financial plan can help you understand what income is sustainable by considering a range of factors, from longevity to inflation. It can also allow you to voice concerns, such as how you’d cope if investment performance didn’t meet expectations or you needed care later in life, and create a safety net if necessary. 

A financial plan will consider the assets you want to leave for loved ones

As well as your own financial security, you may be worried about that of your loved ones. Perhaps you worry that depleting assets now will mean you don’t leave an inheritance to your children or grandchildren. 

An LV= survey found that 88% of people hope to leave money to their family in their will. A financial plan can also ease your mind here. A financial planner can help you understand how the value of your assets could change during your retirement and how to effectively pass on wealth to the next generation.

Contact us to talk about your retirement goals 

If you are nearing retirement or have already retired, please get in touch. We can work with you to create a financial plan that suits your goals and gives you the confidence to use the assets you’ve built up during your working life. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available. 

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.  

When you’re deciding how to pass on assets and who you want them to go to, understanding their value, and how this might change, is crucial. 

Last month, you read about why estate planning should be part of your overall financial and life plan. Now, read on to discover why getting to grips with what your estate covers is important. 

Essentially, your estate is everything you own when you pass away. This could be material items or assets like your investments or savings. As a result, when you first think about what you’d like to pass on to loved ones, it can be easy to miss some things out.

Going through your estate now can inform what you want to happen to certain assets when you pass away and ensure you’ve taken appropriate steps so that your wishes will be carried out.

Understanding the value of your entire estate and individual assets could also mean you’re aware if you’ll need to consider things like Inheritance Tax (IHT) when creating a long-term plan. 

So, where should you start when assessing your estate? 

Bringing your assets together to calculate the value of your estate

A good place to start is by listing your assets along with their value, starting with the most valuable. Among your largest assets could be:

• Property
• Pensions
• Investments
• Savings

You should also consider personal possessions, such as jewellery, a car, or artwork. In some cases, getting a professional valuation can be useful. 

You will then need to consider liabilities, which you should deduct from the total value of your assets. Liabilities may include a mortgage, loan, or other forms of debt. 

Don’t forget that some gifts may be considered part of your estate for IHT purposes for up to seven years. If you’ve given significant gifts to loved ones, such as a lump sum for a property deposit or shares, in the last seven years, you should include them too.

Some gifts are considered outside of your estate immediately when calculating IHT. If IHT is something you need to consider, making use of these could reduce a potential tax bill.

IHT exempt gifts include the annual exemption, which is £3,000 for the 2023/24 tax year, up to £250 to each person, and gifts made from your income. Please contact us if you’d like to discuss how gifting could reduce an IHT bill. 

This process of valuing your estate now can be useful, but you also need to think about how it’ll change over time.  

Why you should forecast how your estate will change during your lifetime 

During your lifetime, the value of your estate will change. This could be due to decisions you make or outside factors.

Your pension, for instance, is likely to fall in value as you use it to create an income in retirement. In contrast, the value of your home could rise as property prices are expected to climb over the long term. 

To ensure your estate plan continues to reflect the value of your assets, considering potential changes is important. Making estate planning part of your overall financial plan means you could consider how values may change. For example, what returns do you expect your investment portfolio to deliver each year, and how would this affect your estate in 10 or 20 years?

When you consider how your estate may change, it could alter your plans. The value of assets increasing could mean you decide to make additional gifts during your lifetime. Or perhaps one asset rising in value means that your children wouldn’t receive an equal share of your estate unless you updated your will.  

Frequent reviews of your estate plan are important. It means you have an opportunity to ensure it still reflects your wishes and changing circumstances.

We can help you understand how your long-term plans and the decisions you make could affect the value of your estate over the short, medium, and long term to create an effective plan that suits you. 

Read the blog next month to learn about how you can pass on assets to loved ones

Once you understand your estate, you can start thinking about who you’d like to benefit from it. There are several ways you can pass assets on, from gifting during your lifetime to leaving an inheritance in a will. Read next month’s estate planning blog to learn more about your options and key considerations. 

If you have any questions about your estate plan or would like to arrange a meeting, please get in touch. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning or tax planning.