Homeowners face a rise in interest rates

August 17, 2015

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By Lucy Palmer-Richeson

The charity Money Advice Trust (MAS) has warned mortgage holders to start preparing themselves for a hike in interest rates.

The rise is expected in the spring of 2016, according to analysts, but could come sooner.

Figures show that homeowners are already in a bid to beat the rising rates. In June, 31,600 people remortgaged their homes and debt of £5.1 billion to  new, cheaper fixed-rate loans. In May, 24,300 did the same, with £3.9 billion of debt.

Jane Tully, head of insight and engagement at MAS, warned: “There remains only a relatively short window for households to prepare for the impact that higher interest rates will have on their finances.

“Households need to look at their finances now, to make sure they can absorb these extra costs. Crucially, now is the time to act if you are worried about your ability to meet your repayments.

“Our message to borrowers is clear. Whether you have a mortgage, personal loan or outstanding balances on credit cards – interest rates are going to rise, and it is highly likely you will have extra costs to pay.”

The Bank of England has said the rise would happen gradually, but even an small increase could end up costing homeowners hundreds of extra pounds a month on their repayments.

Gillian Guy, chief executive of Citizen’s Advice, said: “Historically, low interest rates over the past six years have made it easier for people to manage their finances.

“A rise in rates will make things harder for those already struggling, and push those who are just about managing over the edge.

“Our evidence shows one in five homeowners will fall into arrears when interest rates rise.”

Interest rates have remained the same since the Bank of England cut rates to 0.5% in March 2009 when the UK economy was at the height of the recession.