PERSONAL ACCOUNT

It is not too early to start adjusting to a new world of higher interest rates

It’s fascinating to be writing about stock markets and interest rates right now because – if you believe a large segment of commentary – we are at a pivotal point where the direction of both is changing decisively and seismically.

Interest rates are rising, inflation will return. Yields on bonds (and some other assets) will rise as their value in the market is driven down on the assumption that they will be worth less in a future where other investments pay more.

In other words: borrowers pay more, savers get more.

If true, the post-crisis financial world as we’ve known it for the past seven years – since the Bank of England slashed Bank Rate by 80pc to 0.5pc in 2009 – is over in a great reversal.

The perverse outcomes of ultralow interest rates, where banks charge their depositors and where mortgages are free, will be no more.

In the words of one portfolio manager I spoke to this week: “It’s like emerging from a long spell of having your head held down under water. You can breathe again.”

Of course, this vision of transformation may be wrong or premature. Many economists have predicted a return to inflation and growth at various points in the long years since 2009 – only to be confounded by even lower rates, or negative rates, or more “quantitative easing”, which had the same effect.

But this time the signs of a shift towards higher rates do seem to be filtering through to our everyday finances.

Two weeks ago we stuck our necks out and warned that borrowers’ heyday of rock-bottom mortgage rates was nearing an end. Since then more mortgages have been withdrawn, or repriced at a higher rate.

This included the withdrawal by HSBC of its 0.99pc two-year fixed rate, which for months had been a best buy (see Page 3).

If indeed we are at this crossroads, many other aspects of our financial planning might need revision.

Consider older homeowners who may be thinking of releasing cash tied up in their property. As I’ve written here before, while this process – known as “equity release” – is often viewed as a last resort for those with inadequate pension income, it has increasingly been used as a way to cut inheritance tax bills.

That’s because rates have fallen low enough for the sums to add up.

The lowest equity release rates now available are around 4.2pc, fixed for life. Say you borrow against