Pensioners warned about downsizing after interest rates hit 4%

Bank of England raises interest rates to 4%

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Interest rates rose to their highest level in 14 years yesterday, with the Bank of England raising its base rate to four percent in its 10th consecutive hike. Economists already predict next month’s Base Rate will soar even higher, with a wide consensus of 4.5 percent.

Rising interest rates may make mortgage holders feel nervous, as they reckon with substantial costs, especially if they are on a limited income.

As a consequence, many pensioners could be mulling a move to a smaller property, and wondering about how interest rate rises will affect them. 

Mark Lawrison at Beresford estate agents said more people are looking to move, as a result of wanting to downsize.

The expert explained many people are looking to sell their existing property to bank a portion of the income from sale to fund their retirement.

This could be further sparked by recent economic decisions, particularly this week’s Bank of England base rate rise.

However, experts have warned Britons should not make rash decisions when it comes to property moves, especially in the current climate. 

Henry Tapper, chair of Pension Playpen, told “It’s important to think long-term. If you were considering downsizing anyway, then the rate rise may push you to put your house on the market, but don’t rush to sell out of panic, interest rates fall as well as rise.

“Remember that your bright idea to downsize is likely to be popular so you will be selling into a buyers market – be careful.”

Karen Barrett, CEO of Unbiased, explained to downsizing “makes sense for a lot of people” as it can help to save money in retirement, and save time and money due to less upkeep.

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However, she also warned the matter is not one which should be taken lightly, adding: “It will impact the rest of your life, so it’s vital to weigh up the pros and cons before jumping in with two feet.

“The first thing to consider is your reason for downsizing. If it’s purely to unlock cash within your home, then equity release might be a more suitable option.

“If you’re looking for a smaller property that’s more manageable, check that there are opportunities to downsize in the area you’re hoping to move to. 

“Alternatively, you might dream of downsizing to the coast, but if this means moving away from family and friends you could become isolated.”

Antony Abell, CEO and co-founder of TPX Property Exchanges, suggested downsizing could “help fund healthcare or care home costs amid economic uncertainty”.

The expert said to such a move could help raise more funds, which could be especially useful in a high interest rate, high inflation environment. 

When it comes to an improving economy, some people may be tempted to put extra money into their pension, rather than make decisions about their property.

Mr Tapper also analysed this idea, adding: “As for pensions, remember they pay your income which your house doesn’t  – you can’t buy a sausage with a brick.

“Money put into a pension comes back to you much bigger – because of tax-breaks, investment returns and the longer you leave your money to grow, the better your return. 

“So invest in your pension for the long-term and ideally use your pension to pay your household bills.”

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It appeared to be a sentiment shared by Mr Abell, who also looked towards pension saving as a potential alternative.

He explained: “For those who are retired, a higher interest rate on savings will most likely be welcomed, even though the best buy rates still lag inflation. 

“However, for people who have pensions that remain invested in the stock market, the impact of higher rates vary depending on the proportion invested in equities versus the proportion invested in other more inflation resistant asset classes.”

Regardless of the decision Britons ultimately make, all the experts stressed it is vital to think carefully before making a hasty decision.

They also encouraged people to seek independent, regulated financial advice to suit their specific circumstances. 

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