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If Interest Rates Rise, More Than Half Would Struggle to Pay Their Mortgage
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
If interest rates rise, more than half of borrowers state that they would either struggle or fall behind with their mortgage repayments, according to a report by the Building Societies Association (BSA).
The research reveals that one in ten would experience “real financial problems”.
Also, one in four claim that they would experience difficulty “from time to time”.
Almost one in five said that a rate increase would force them to cut down on essentials, such as food and clothing, in order to meet their monthly repayments. Furthermore, 15% believe they would have
If Interest Rates Rise, More Than Half Would Struggle to Pay Their Mortgage
to work more hours to keep on top of their finances.
Over one fifth (22%) of respondents said that they would not have to make changes to their lifestyle in order to meet their mortgage repayments.
Head of Mortgage Policy at the BSA, Paul Broadhead, comments on the findings: “Concern from borrowers is natural when it comes to interest rate rises.
“There are at least 1.85m homeowners that have never experienced a rate rise. We have had a record low base rate for so long, it is unsurprising that some people are concerned that a rise in rates will affect their lifestyles and ability to make mortgage repayments.
“Clearly some of the actions borrowers say they would take may not be within their control, for example, working additional hours.
“Our advice to those concerned about interest rate rises is to start thinking about how they will manage the increased costs.”
He suggests: “This could include creating a household budget, to taking a look at mortgage calculators and rescheduling unsecure loans such as credit cards. Free money advice is available for those that are concerned.
“The good news is that the results of our survey show nearly a quarter (22%) of borrowers will not have to make any changes to their lifestyle when interest rates rise. With the economy more stable than it has been for years, this is a positive result.
“That said, with inflation near zero and the Monetary Policy Committee voting by a majority of eight to one to maintain the bank rate at 0.5%, it is looking unlikely that things will change before well into 2016.”1
Chief Executive of the Money Advice Trust, which runs the National Debtline, Joanna Elson, adds: “After years of low rates, borrowers’ minds are beginning to focus on the prospect of higher interest rates, and what this will mean for their finances.
“Nevertheless, many mortgage payers are still in for a big financial shock when rates do start to climb – and we remain concerned that many will fall into problem debt as a result.
“We must not forget that renters, too, are likely to be affected as extra mortgage costs are passed on by landlords.
“Households now have a window of opportunity to re-assess their budgets, look again at their borrowing and think about how they will cope with higher interest rates.
“It is crucial they take advantage of this and prepare themselves now.”
She advises: “Anyone who is concerned should speak to their lender and seek free debt advice from a charity-run service such as National Debtline as soon as possible.”1
