‘You may look back with relief’ Britons told to act amid inflation surge – but check terms


The latest Consumer Price Index (CPI) figures were released on Wednesday, showing the rate of inflation in the UK had surged to 2.1 percent, surpassing the Bank of England target of two percent. It had increased by 0.6 percent since April 2021, when the rate of inflation more than doubled compared to March 2021.

On borrowing, Mr Stevenson said a rise in inflation will likely mean a rise in interest rates is on its way.

“Rising inflation will in due course lead to higher interest rates which naturally will feed through into higher mortgage rates,” he said.


“There is actually little sign of this just yet.

“Home loans remain at very affordable levels, especially for borrowers who have some equity in their house.”

Amid the current situation for mortgage borrowers, Mr Stevenson suggested that now could offer an opportunity for some to take action.


“Now might be a good time to explore locking in a fixed rate mortgage,” he continued.

“You will have to pay slightly more if you are looking for longer-term security (say five years or more) but you may look back with relief that you fixed your outgoings while inflation still looked like tomorrow’s problem.”

Those who do decide to switch mortgage deal should ensure they have taken a look at the small print of their current deal though, Mr Stevenson warned.


“Don’t forget to check the terms of your current loan before making a change,” he said.

“Most fixed rate mortgages come with an early redemption penalty which can negate the benefit of locking in a new rate.

“There’s normally a one-off fee for setting up a new mortgage which needs to be factored in too.”


Addressing the action borrowers may want to take, Mr Stevenson said: “Compare the cost of your current mortgage with what’s available on the market today and weigh up whether a change makes sense.”

The impact inflation has on savings is another topic Mr Stevenson commented on.

“Interest on cash savings remains very low and is almost certain to be less than the current rate of consumer price inflation,” he said.


“That means that you should not hold more than you need in cash. It will be falling in value in real, inflation-adjusted terms.

“However, it is worth considering why you hold some of your money in cash.

“It’s not just about the return you are earning on it. A cash reserve can protect you from being forced to sell your investments at the wrong time – after a fall in financial markets.


“A good rule of thumb is to have at least six months’ worth of everyday expenses to hand in the form of cash. You could make a good case for having even more than this to protect you from market volatility.

“The second reason to have some cash available is the option it provides to take advantage of those ups and downs in the market.

“If you are fully invested and share prices fall you need to have some dry powder to capitalise on the opportunity.”


So, what steps does he suggest savers consider?

“Make sure that you have at least six months’ worth of cash in reserve,” he said.

“And if you are taking an income from your savings and investments, make sure that you are automatically replenishing that cash reserve month by month.”


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