Interest rates have been surging surprisingly fast – home loan rates that started with a 2 this time last year now start with a 3, and they may rise to over 4% next year.
On the downside, this means the cost of your debts will rise; on the upside, the interest you earn on term deposits and savings should also go up.
“We’ve seen interest rates rising fast, but we don’t know whether this rapid increase will continue,” says Michael Cave, director of Cave Financial. “It will depend a lot on the global economy, but I don’t think they’ll keep ramping up forever.”
Combined with rising interest rates, inflation has reached its highest level in over a decade, with annual inflation at 4.9% in September. This, too, has upsides and downsides. The disadvantage of inflation is that the cost of living rises. But the advantage is that asset prices also tend to rise and debts become proportionately smaller.
Give yourself a buffer against rising inflation and higher mortgage costs with these three strategies:
- Review your property investments
Property can be a fantastic asset during a time of high inflation, but you also need to think about how you can handle the interest rates. Michael Cave recommends you review your portfolio, talk to your accountant about the new tax deductibility rules, and get in touch with your mortgage broker before your fixed term is about to roll over.
“It’s important to think about how you will manage rising interest rates – not only the costs but also the ways your loans are structured,” says Michael. “This is a great time to review your structures to make sure they suit your situation.”
- Invest in yourself
Wages are rising quickly, and a higher income will help you offset both inflation and rising interest rates. This is a great time to upskill, find a better job, ask for a promotion, start a side hustle or rent out a room on Airbnb.
Your ability to earn can be your greatest asset, so don’t be shy about investing in yourself!
- Continue your smart lockdown spending
Take the positive spending habits of lockdown – like eating fewer takeaways and buying fewer clothes – and try to lock those in for life.
“Have a look at what you’ve achieved and how much you’ve gained,” Michael says. “If you’ve realised you have a greater savings capacity than you thought, try to continue those positive habits.”
Together, these three habits can help you beat rising interest rates and protect yourself against inflation in 2022.