16th September 2026
The prospect of higher interest rates lasting longer is becoming a growing concern for households and businesses.
With inflation still above target, oil prices elevated and financial markets demanding higher returns on government and corporate debt, borrowers should not assume that the era of cheap money is about to return.
For anyone carrying significant debt, the message is simple: use the time available now to reduce your exposure to rising borrowing costs.
Start with the most expensive debt
For households, the first priority should normally be the debt carrying the highest interest rate.
Credit cards and some forms of unsecured borrowing can be particularly expensive. Credit-card interest rates in the UK, for example, remain high on, making persistent balances extremely costly.
Paying down expensive revolving debt can provide a guaranteed saving equivalent to the interest rate being charged.
Consumers should also check whether they can move expensive debt to a cheaper arrangement, but consolidation only makes sense if the total cost is genuinely reduced and the borrower avoids building the debt back up.
Review your mortgage before you have to
Homeowners should find out exactly when their current mortgage deal ends and what rate they will move to afterwards.
Don't wait until the last minute.
Someone approaching the end of a fixed-rate mortgage has time to compare alternatives, examine their finances and consider whether overpaying is affordable.
Those on variable or tracker mortgages should calculate what would happen if their monthly payment increased by another 1% or 2%.
The objective is not necessarily to pay off the mortgage as quickly as possible.
It is to make sure that a higher monthly payment would not destabilise the household budget.
Build a cash buffer
Higher interest rates often arrive at the same time as higher household bills.
That makes an emergency cash reserve increasingly valuable.
Anyone who can afford to do so should consider building a readily accessible reserve capable of covering essential expenses for several months.
Even a relatively modest emergency fund can prevent an unexpected bill from being put onto a high-interest credit card.
Businesses need to stress-test their borrowing
Companies face a similar problem, but potentially on a much larger scale.
Business owners should calculate what their debt would cost if interest rates were 1%, 2% or even 3% higher.
They should examine every loan, overdraft, commercial mortgage and asset-finance agreement.
A business that is comfortable with today's interest bill may look very different if refinancing takes place at a substantially higher rate.
It is also worth examining the timing of refinancing rather than allowing several large loans to mature simultaneously.
Don't confuse cheap debt with good debt
One of the biggest dangers during periods of uncertainty is borrowing simply because credit is available.
Businesses should ask whether new borrowing will generate enough additional profit or cash flow to justify the interest expense.
Consumers should similarly consider whether a purchase can genuinely be afforded if borrowing costs remain elevated for several years.
The calculation should be based on today's affordability plus a higher-rate scenario, rather than assuming rates will soon return to previous lows.
Look at fixed and variable borrowing carefully
For both consumers and businesses, fixing borrowing costs can provide certainty.
But fixing at a high rate also has a downside if interest rates subsequently fall.
There is therefore no universal answer.
The important thing is to understand the trade-off between certainty and flexibility before making a decision.
Businesses should protect cash flow
For companies, cash flow may become more important than profitability on paper.
Businesses should identify customers who pay slowly, review payment terms, reduce unnecessary stock and examine subscriptions and overheads.
Every pound of unnecessary expenditure removed from the business is effectively another pound available to service debt.
Companies should also speak to lenders before experiencing financial difficulty.
Banks generally have more options available when a borrower is still meeting its obligations than when payments have already been missed.
The key message
The current environment does not guarantee that interest rates will continue rising.
Central banks could ultimately cut rates if inflation falls and economic growth weakens.
But households and businesses should not base their financial plans on that outcome.
The safest approach is to prepare for the possibility that borrowing costs remain higher for longer.
That means reducing expensive debt, reviewing mortgages and loans, building cash reserves, stress-testing finances and avoiding unnecessary new borrowing.
For households and businesses carrying substantial debt, the time to discover that higher interest rates are unaffordable is not when the next rate increase arrives.
It is now, while there is still time to make changes.