Recent research has demonstrated that a worrying consequence of a 1% rise in interest rates would be that well over 6 million people would quickly face difficulty in covering their mortgage commitments.

Whilst the inevitability of an eventual rate rise is clear, it is likely to be gradual but will particularly impact families already struggling to make ends meet. A significant number of mortgage prisoners (people whose circumstances have changed significantly since they originally took out their loan) will consequentially be created as they struggle to understand and come to terms with the impact an interest rate rise has on their day to day finances.

In cash terms, a 1% rise in interest rates equates to borrowers with standard variable rate mortgages paying an additional £55 a month for every £100,000 owed. Interest rates continue at their historical low of 0.5% for the time being though economists are currently predicting they will begin to climb from Spring 2016.

As interest rates begin to rise, some 63% of borrowers responded they would first have to cut back on non-essential spending to cover the additional cost. However, 13% acknowledge that they would quickly get into financial difficulty as they continue to try to make ends meet. The pressure to meet increased payments would consequentially force a substantial number to consider selling their home to avoid the immediate higher repayment costs.

In attempting to prepare for the forecast rate rise, nearly 25% of borrowers have already switched to fixed-rate mortgages and a further 16% have stated that they plan to take fixed-rate mortgages to protect themselves against future rate increases. However, the survey also indicates that in excess of 33% of homeowners are not currently taking any steps to protect their existing position against future rate rises.

As reported last month, consumer debt is once more on the increase and it has already been suggested that there could be a significant personal debt problem looming as householders are being forced to borrow to fund living costs. If you are concerned about the level of your personal debts, a confidential discussion with an experienced and qualified specialist to talk through the range of options available may well be the best course of action. Please contact us if you would like an initial consultation which is free of charge.