Over half of borrowers to struggle if rates rise
A concerning new report indicates that over half of the total number of borrowers in the UK believe that they will struggle or fall into arrears with mortgage repayments, should interest rates rise.
Research published by the Building Societies Association suggests that 52% feel they would be in trouble, should the rates increase.
Issues
Further data from the survey shows that 10% of respondents would face severe financial hardship. 14% said they would be able to keep up with repayments, albeit at a constant struggle. 23% expressed concern that they would experience difficulty from time to time.[1]
After being questioned on the impact that rate rises would have on their lifestyle, 18% of borrowers said they would have to cut down on essentials, such as food or clothing. 15% said that they would have to work more hours to keep on top of their mortgage commitments.[1]
‘Concern from borrowers is natural when it comes to interest rate rates,’ noted Paul Broadhead, head of mortgage policy at the BSA. ‘There are at least 1.85 million home owners that have never experienced a rate rise, we have had a record low Bank 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 payments.’[1]
Broadhead feels that, ‘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 that this could include, ‘creating a household budget to taking a look at mortgage calculators and rescheduling unsecured loans such as credit cards. Free money advice is available for those that are concerned.’[1]
Over half of borrowers to struggle if rates rise
Optimism
‘The good news is that the results of our survey show nearly a quarter of borrowers will not have to make any changes to their lifestyle when interest rates rise,’ Broadhead continued. ‘With the economy more stable than it has been for years, this is a positive result.’[1]
‘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,’ he added.[1]
Joanna Elson, chief executive of the Money Advice Trust, believes that after years of rates being at such a low level, borrowers are beginning to plan for the inevitable rise. She said however, ‘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.’[1]
‘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,’ Elson concluded.[1]
[1] http://www.propertywire.com/news/europe/uk-home-lending-poll-2015092911031.html
