There's no getting away from it – mortgage rates are going to rise. It'll be a huge shock for many borrowers, a lot of whom may have never known anything other than this low-rate environment, and there are fears that some could be in financial difficulty when rates start to creep up.
Research from the Building Societies Association (BSA) highlights this in more detail. According to their findings, 27% of those with a mortgage could find it particularly difficult when interest rates rise – 7% said they could be in serious trouble if rates and repayments increase as expected over the next three years, while 20% said they'd be in slight trouble. Potentially, that's a lot of people struggling to make repayments.
"These results indicate the sensitivity of people's monthly spending to changes in general household expenditure, indicating that as mortgage rates rise this could have a significant impact on economic recovery," said Paul Broadhead, head of mortgage policy at the BSA. "Many consumers are only used to a low rate environment which will change, and whilst most mortgage rates are not linked quite so directly to the base rate as they used to be, rates will rise as it increases."
The study also revealed what borrowers will do to prepare for rising interest rates – and some paint a particularly worrying picture for the future. While 39% would cut back on non-essential spending, such as holidays and eating out, 20% would need to cut back on essentials like food and clothing, and it's these kinds of sacrifices that are concerning. A further 9% would use their savings to cover the repayments – not ideal when we're all advised to have a healthy emergency fund – and 6% would be forced to move to a cheaper property. That's a huge sacrifice to make, and it could turn an already stressful situation into one that's even more emotionally-fraught.
Hopefully you won't need to take such drastic action when rates start to rise, but if you want to make sure of that, it's important to start preparing now. Planning ahead and having a clear idea of how you can manage your funds when your repayments change can make all the difference, and if you start making the necessary adjustments now, it won't come as such a shock when rate rises come.
Here are a few things you may like to consider:
Time to remortgage? Compare the options
Find the best savings accounts to build up your reserves
Check out 0% balance transfer cards
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