With all that is happening in the economy today sometimes we just need someone to help us understand how we can deal with the cost of living and increased interest rates. Adam Humphreys Director of Finance at LZR Partners talks about what you need to do.

What is happening in the market right now?

When you look at it most people coming to us now, they’ve got the issue that rates have gone up. They’ve come off fixed rates then go on to variable rates that are, nearer 3% higher, because they had fixed rates around 2%. That’s really starting to happen and the impact on their new repayment is massive. So, it’s impacting personal budgets.

Increased spending leading into Christmas.

We are also seeing variable rates going up every month so now they’re facing their monthly payment going up. What’s added to this crisis, I believe, is that leading into December last year there was a lot of ‘I don’t care’ attitude. Everyone had been through COVID, and times had been tough. But people were cashed up because they couldn’t spend during COVID. So, they started to spend leading into Christmas.

Is the CPI starting to take effect.?

Before Christmas the CPI wasn’t such a big issue, so now people have spent a lot of their savings and decided to live it up a little. Now what we’re going to see going forward is people looking at it closely and saying I really need to address this because of the rates going up. Primarily they should look at negotiating with their bank to get a lower rate or consider their options to move to another bank.

What can they do about this?

There’s a lot of restructuring going on, debt consolidation of credit cards, of personal loans, even to the point that clients look at the possibility of extending their loan term out to reduce their monthly commitment.

Are people extending their loans?

There’s a little bit of that going on. But it’s a double-edged sword because it might not be the right decision for everyone to extend your loan long term. The question then becomes, when do you pay off your debt? What is your overall strategy? So yes, we’re starting to see increased requests in this area.

Should you go interest only?

Potentially some clients are looking at paying interest only for a period anticipating that the yield curve might come down in 18 months. The idea is to go interest only for a year or two to reduce the current monthly payments, then go back on to principal and interest repayments at a later date. So, there’s a lot of different strategies around minimizing the impact on your cashflow but you need to have a discussion with a professional to assess you options.