How homeowners can prepare for an interest rate rise
Interest rates have been at historic lows since 2009, but a hike of just two per cent could see the monthly cost of mortgage repayments go up by £150, according to the MAS.
While 84 per cent of UK mortgage holders think an increase of that amount would send them into financial difficulties, 56 per cent have no plan.
Nick Hill, money expert at the MAS, says: “The smallest increase in mortgage repayments can make a significant impact on a family budget – especially for those people who are already financially stretched. So it’s a good idea to review your personal finances, start looking at where you can cut back, and plan ahead now.”
According to the Council of Mortgage Lenders it’s unlikely that interest rates will rise a full two per cent until at least 2018, giving homeowners ample time to prepare.
The CML’s Sue Anderson says: “Although we don’t know when rates will rise, the monetary authorities have previously flagged that rises will be finely calibrated, so large and sudden shocks are unlikely. By planning ahead now, mortgage holders can get a clear picture of what a rate rise would mean for their own repayments.”
Here’s how you can prepare:
Remind yourself of how your monthly mortgage payments are, what interest rate you’re currently paying and whether that rate is fixed or variable. This is important information and you must be armed with it to make an effective choice.
Calculate the impact
Don’t rely on guesswork and estimations. YourMortgage.co.uk has useful tools to help you calculate how much of an impact a rate rise of any size will have on your monthly mortgage payment. Their ‘How much will it cost’ mortgage calculator works on a sliding scale, allowing you to see what even incremental changes mean in pounds and pence.
Look at your budget
Higher interest rates mean higher monthly repayments, and that calls for a complete revamp of your budget. What can you cut back on? Can you afford to save money now in anticipation of higher monthly outgoings? Any nest egg you can build up will cushion the blow when rates start to tick up.
Decide whether to fix
A fixed mortgage could be the preferred route if you think rates are going to rise. If you’re on a standard variable rate mortgage you can speak to your bank about fixing your rate. This can be simple enough to do if you don’t need to borrow any more money and are willing to keep your terms and conditions the same, but you may want to seek professional advice before you make any decisions.