How businesses, landlords and homeowners can cope with rising interest rates

As the Bank of England looks to tackle the UK’s soaring inflation, it has raised interest rates 13 times since December 2021. The increase to 5% in June 2023 put rates at a 15 year high.   

This repeated action by the Monetary Policy Committee is having a significant impact on many business owners, landlords and homeowners.  

See below for tips on how each group can tackle it.  

Small businesses 

Rising interest rates can have several impacts on small businesses including: 

• More expensive finance 
• Increased costs 
• Reduced spending by customers 
• Increased risk of late payment by clients 
• Increased supplier charges 

Here are some ways businesses can deal with it: 

Reduce costs 

To improve your business’ cash flow, find ways that you can cut your expenses. 

Energy costs are also high but there are steps you can take to reduce your energy bills such as using LED lightbulbs, switching off electrical equipment at the end of the day, installing building insulation and using smart meters to better monitor your energy usage. 

Other cost cutting measures include:  

• switch to hybrid working to save on office costs 
• negotiate better deals with suppliers or look for cheaper alternatives 
• cancel unnecessary business subscriptions 
• switch to more online meetings to reduce travel expenses  

Raise prices 

With your customers also likely to be facing challenges due to high interest rates, it might seem inappropriate to raise your business’ prices. However, it could be an action you need to take.  

Calculate your costs and work out by how much you need to raise prices before segmenting customers into groups to identify those likely to be less sensitive to an increase. 

Adding extra value can help to soften the blow of increased prices, and you should be transparent about why you are doing it. Your loyal customers will likely appreciate your honesty. 

Read more advice on how to raise your prices here. 

Find funding 

Although high interest rates make many finance options more expensive for businesses, taking on a loan with a fixed interest rate could be beneficial in that you can plan for repayments and not be affected by future rate increases.  

You might also be able to access funding through alternative providers with less restrictive eligibility criteria than traditional high street banks, or apply for grants.   

Tackle late payments 

You may experience an increase in late payments from clients during periods of high interest rates. 

Take steps to tackle it by using accounting software such as QuickBooks to send reminders for payment, and ensure invoices contain all the required information to ensure you get paid on time.  

If a customer still fails to pay, a debt recovery agency may be needed. TaxAssist Accountants works with several debt recovery services. 

Make tax efficiencies   

We have put together a handy summary of key tax tips to help you stay on track and strengthen your business and personal finances for the current tax year. 

Homeowners 

People with both variable rate tracker mortgages and standard variable rate mortgages are likely to see an increase in repayments due to interest rates rises.  

Here are some tips for how to deal with it.  

Work out the impact 

The first step is working out how much more you might need to pay due to an interest rate rise. You can do that using the TaxAssist Financial Services mortgage payment calculator. 

Once you know the extra costs, you can then create a budget and see if there are any expenses you can cut back on or try to build up savings if you think increases are likely in the future.  

Help from the mortgage industry 

The Government has reached an agreement with the UK's principal mortgage lenders to provide support to mortgage holders struggling with repayments. It includes: 

• Customers won’t be forced to have homes repossessed within 12 months from their first missed payment. 
• Customers approaching the end of a fixed rate deal can lock in a deal up to six months ahead. They can also apply for a better deal right up until their new term starts, if one is available. 
• Customers can switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to. Both options can be taken without a new affordability check or affecting their credit score. 

Get advice 

If you’re worried about making repayments, you can get free debt advice. The Government-backed Money Helper website has guidance as well as a free debt advice locator tool. 

Landlords  

Many of the tips above also apply to landlords. Other tips for how landlords can deal with increased interest rates are:  

Shop around for mortgages 

Landlords approaching the end of fixed term mortgage deals should research the best deals.  

While increasing interest rates mean fixed rate mortgages are likely to be more expensive than previously, price comparison websites and mortgage specialists may help you to track down a deal.  

Build a relationship with tenants 

The interest rate rises could be negatively affecting your tenants so stay in regular contact and be prepared for what you do if there are any missed rent payments. If tenants are struggling to pay, work with them on an arrangement that works for both of you.  

Stay on top of repairs 

Ensure you carry out regular property inspections to spot any problems. Failing to make repairs early could mean they develop into more expensive issues.  

Sell your property 

You may decide to sell your property. Speak to your accountant for advice on tax planning opportunities that could minimise your Capital Gains Tax liability. 

Sell your property or consider using a limited company  

You may decide to sell your property or possibly explore the benefit of using a limited company. Speak to your accountant for advice on tax planning opportunities that could minimise your Capital Gains Tax liability.  

How TaxAssist Accountants can help 

TaxAssist Accountants can provide the right advice to support your business. While our expertise covers tax, accounting, bookkeeping and payroll, we can also connect you with other providers we work with both locally and nationally. 

Contact us to find out more about our services and to book a free video or face-to-face consultation. 

Date published 19 Jul 2023 | Last updated 20 Mar 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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