Mortgage blog: What you can do to prepare for mortgage rate rises
Posted 14 October 2014 by Keith Osborne
Sooner or later, mortgage rates are going to rise. Despite the base rate having remained at its record low for over five years, the Bank of England is expected to raise interest rates in either late 2014 or early 2015.
Research from the Building Societies Association has found that over a quarter of borrowers could end up in financial difficulty when rates rise. So, how can you cope with mortgage rate rises?
According to findings from the Building Societies Association 7% of those with a mortgage 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.
Paul Broadhead, head of mortgage policy at the BSA, said: “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.”
The study also revealed that almost two in five borrowers (39%) would cut back on non-essential spending if rates were to rise while a fifth (20%) would be forced to cut back on essentials such as clothing and food. 9% would use savings to cover their increased repayments while 6% would be forced to move to a cheaper property.
If you’re one of the people who is likely to have to cut back on spending when mortgage rates rise it could be wise to plan now. Having some ideas of how you can manage your household spending to cope with rate rises could make all the difference.
You can prepare for a mortgage rate rise by:
- Shopping around for a better deal – if you are on your lender’s standard variable rate or your fixed or tracker deal is coming to an end, shop around to see if there are any good remortgage deals available. You may well be eligible for cheaper deals which could reduce your payments
- Budgeting – make a household budget and analyse your spending. See where cutbacks can be made
- Get a better deal on your other finances – transferring a credit card balance, switching your energy supplier or shopping around for cheaper insurance can help you to save money. This will free up more cash to help you to meet your increased mortgage payments
- Pay a lump sum off your mortgage – if you have savings available it could pay to reduce your mortgage balance. This can lower your repayments and help you to pay your home loan back more quickly
Keith Osborne, editor of Whathouse.com, says: “Making plans now can help you to prepare for higher mortgage payments when they inevitably arrive.”
Click here to find out how Whathouse.com can help you find the right mortgage.