Mon 31 Jul 2017
With incredibly low interest rates in place for a prolonged period now, some have raised concerns about the chances of a rise happening soon. More specifically, there has been some concern about the potential for borrowers to experience trouble in meeting their mortgage payments should an increase occur.
However, recent data from trade body UK Finance indicates most borrowers can withstand any increases that may be seen in the next year or two. Indeed, the trade body believes mortgage holders should be able to withstand rises much greater than the ones we are more likely to see.
Interest rates historically low
Most people will recognise that interest rates are very low. Even a rise of, say, 1% would not change this. Many people are on fixed-rate deals that would see them unaffected by any rises that occur. However, even those on variable-rate deals look able to weather the mild storm that would blow their way should rates go up soon.
The data also shows that 2.4 million people have taken out a mortgage over the past decade. There has been no rise in interest rates during that period, so there is a whole section of borrowers who have no experience of interest rates doing anything but going down or remaining the same.
The potential for rates to rise
“Most people realise interest rates are set to increase – and probably sooner rather than later,” said Darren Pescod, CEO of The Mortgage Broker Ltd. “However, this new information seems to indicate most people are prepared for such a rise. It is unlikely rates will increase by much when they do. But any rise will of course affect those who have variable or tracker rate mortgages. Furthermore, anyone who is nearing the end of a fixed-rate deal may wish to start looking around for a better deal to switch to, instead of settling for a variable-rate deal.
“There are still plenty of good deals on the market today, so it would be wise for mortgage holders to check the conditions on their mortgage and to look for a better deal if they need to.”
Alive to the impact
The research from UK Finance has suggested borrowers should be “alive to the impact” an increase in interest rates could have on their finances if – or perhaps when – it happened. Those who do not currently have a fixed-rate deal would be well-advised to look for an affordable one now, to secure a reliable monthly payment for the duration of that deal. While any increase seen will likely be small, it will still have a financial impact on many.
Pescod says “The stricter rules on mortgage availability and acceptability are in place to make sure fewer people get into trouble when rates rise. However, it is still up to the individual to ensure they are in as strong a position as possible, and can afford any increase in payments if they do not have a fixed-rate mortgage.”
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