By Dave Hickey of DHKN
The ECB today announced an increase of 0.5% in its base lending rate, its first hike in rates in 11 years.
What will this mean for your business and personal finances as well as your pension plans?
What can you do to protect you and your business from the worst of the impact?
How will it impact me?
If you have borrowed funds either personally or for your business, and your interest rate is not fixed, then there should be an almost immediate impact on your monthly repayments.
Examples:
Business Loan
€50,000 taken out on 21 July 2021 for a four-year term at a variable rate of 5.75%.
Current monthly repayment: €1,168.53
Revised monthly repayment: €1,179.99 Monthly Increase: €11.46
Mortgage
€300,000 taken out on 21 July 2017 for a twenty five-year term at a variable rate of 2.75%.
Current monthly repayment: €1,383.93
Revised monthly repayment: €1,461.95 Monthly Increase: €78.02
You can see how these are calculated at this link and if you’d like to get a version of this in Excel or Google docs, then please contact dhickey@dhkn.ie or your regular DHKN contact.
How will it impact my pension?
Niall McBride of Maven Financial Planning advises: “Generally, when interest rates increase equity markets will fall but because this has been anticipated for a while it’s mostly priced into the market now.”
“It can be a little more nuanced for those invested in bonds because while income from bonds will increase their underlying value falls.”
“It’s important to remember that people are not only investing for their retirement but for the 20+ years after ‘retirement’, so long-term view is important.”
What you can do
In our recent newsletter to clients we outlined six steps you can take now to address the business and personal risks of inflation and interest rate hikes:
- Evaluate your current financial position.
- Draw up a plan using assumptions based on today’s data.
- Model different scenarios because there are a lot of variables right now.
- Identify potential pinch points and what actions you can take to address them.
- Secure back-up funding – just in case!
- Engage with Revenue if you have warehoused debt.
You can find the full article here.
If you’re concerned about the impact on pensions contact your adviser.
We know that every business is unique and if you’d like to discuss your specific challenges with one of our team, please contact Dave Hickey on 0876253657 or at dhickey@dhkn.ie.
