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Are you Prepared for a Hike in Mortgage Interest Rates

Most industry experts are betting on a rise in mortgage interest rates either later this year or very early in 2015. 

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The expected rise in interest rates will be a new experience for many home owners.  According to industry experts, around one million home owners have never experienced an interest rate increase, having climbed onto their first rung of the property ladder after the base rate fell to its rock bottom level of 0.5% in 2009.  

However research from a Government backed body, the Money Advice Service (“MAS”), has said that more than half of mortgage holders have no plan in place for how they will cope with an increase.  Some 56% of mortgage holders surveyed by the MAS admit to having done nothing so far to prepare for the prospect of their home loan repayments becoming more expensive after the Bank of England base rate moves off its historic low. 

This is despite almost 1 in 5 (19%) of the 3,000 mortgage holders surveyed, saying that they will “really struggle” to cover any increase in their monthly payments.  

Both banks and building societies are warning home owners to start planning now for the impact of increased mortgage costs on their budgets.  The MAS found young mortgage holders are both more likely to be unaware that rates are likely to rise at all, and to have been financially stretched when they took out their home loan in the first place.  

Worryingly, 1 in 12 (8%) of people across all ages said they were not aware interest rate rises are expected on the horizon, rising to 1 in 6 (16%) in mortgage holders under the age of 35.  How quickly a borrower feels the impact of any rise will depend on what type of mortgage they have.  Around 9 in 10 new mortgages, being taken out by first time buyers and existing home owners, are fixed rate products which cushion the borrower from any immediate impact of the base rate rising.  

The survey also found that almost 1 in 3 (28%) of current mortgage holders do not even know what their current mortgage rate is, and 1 in 33 (3%) are unaware exactly how much money currently goes out of their account every month to cover their mortgage.  

It is therefore very important that you start to adjust your budget now to prepare for the inevitable rise in the base rate.  If you are already struggling with your payment and know you will struggle to cover any increase in those payments when the rate rises, you should be talking to your mortgage provider to try and work out a way forward with them, so that you do not fall into arrears when the rate does rise, which may then put you at risk of losing the roof over your head in any subsequent repossession proceedings.