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If rates rise, could you afford your mortgage?

If rates rise, could you afford your mortgage?

Category: Mortgages

Updated: 03/12/2013
First Published: 03/12/2013

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Interest rates have been at their record low levels since 2009, but what happens when they rise? The base rate of 0.5% could be on the up as soon as 2015, what with a combination of falling unemployment rates and the end of the Funding for Lending Scheme (FLS) for homeowner borrowing, and that could mean mortgage rates rise accordingly. Could you afford to make those additional repayments?

Low rates may seem attractive now, but prospective homeowners are being urged to think about the amount of long-term debt they're taking on board. They'll be making repayments for the next 25-30 years and there's no guarantee that the price of their house will increase in-line with mortgage rates, so it's important for borrowers to be confident that they can fully service the mortgage even at higher rates of interest.

They should be particularly wary given the fact that the Bank of England (BoE) has warned that help may not be forthcoming for homeowners who find themselves struggling to make future repayments.

"Are you going to be able to service that mortgage five years from now, 10 years from now, if interest rates are higher?" asked Mark Carney, governor of the BoE, "Or are you counting, even subconsciously, on the price of your house keeping going up and if something happens an ability to sell it quickly and not facing the consequences of not being able to pay?"

The advice is to take a long-term view of affordability rather than focusing on the short-term repayment schedule. Prospective homeowners need to make sure they're not pricing themselves out of future rate rises – if they're struggling to make repayments now, it could be even worse when rates eventually increase.

Use our mortgage calculator to determine what your current repayments could be, but remember to make sure they're wholly affordable and consider how much they would be should rates rise by 2, 3, 4 or even 5% – finding a good deal now is always advisable, but you need to make sure it'll be affordable in the future too.

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