Homeowners would struggle to cope with interest rate increase

July 30, 2017 by Brendan O'Neill

Home owners

According to Moore Stephens, an accountancy company, a large number of homeowners would struggle if they were faced with a rise in interest rates of just 0.5%.

According to Moore Stephens, data from the Bank of England indicates that households in the UK are currently paying interest of £39.2bn on debt, which would most likely be affected immediately by an increase in interest rates. If rates were to rise from the current rate of 0.25% to 0.75%, the level of interest payable on outstanding debt in the UK would increase to £42.6bn.

The main influence for this will be mortgages which have a variable rate, according the accountancy firm. There’s currently £591bn outstanding in the UK for this type of mortgage, with an average interest rate of 4.23%. Michael Finch, partner at Moore Stephens, states that a large number of households will get a shock when interest rates return to a more normal level. He added that the risk of those who have stretched themselves to be able to afford a home, being unable to cope if rates rise above the current level, is very real.

As more fixed rate mortgage deals come to an end, this problem may become worse, especially as some households may fail the new, stricter affordability checks. An increase of just 0.5% on interest rates would also impact on consumer credit, pushing up the cost of credit cards and loans.

CeMAP qualified mortgage advisors can help to ensure that borrowers check affordability prior to applying for a mortgage.