As interest rates have been kept at their lowest since 2009, more borrowers are taking chances and borrowing to their absolute financial limit. If the Bank of England decides to raise the base rate, which is possible during the next two years, a large number of home owners will struggle to maintain their monthly mortgage payments.
Just an increase of one or two percent can make a huge difference to monthly repayments. A quarter of borrowers have admitted that an increase of just £99 each month would make it very difficult for them financially. Over half of all borrowers say that they are struggling to meet their repayments every month. Although the base rate is currently at its lowest point of 0.5%, it is possible that it will increase by two or three per cent in the next couple of years. This will have a huge impact on repayments.
When you apply for a mortgage, make sure you understand what type of mortgage it is and how an increase in interest rates will affect your repayments. Find out the length of the mortgage term and whether you face any early repayment charges.
Monitor your spending so that you can meet the increased monthly repayments. It may be a good idea to cut back on spending so that you can start an emergency fund. When you speak to a mortgage adviser who has undertaken CeMAP training, make sure you are honest about income and expenditure, so they can provide the very best advice.