Over a quarter of people with a mortgage (27 per cent) say they will be in financial trouble when interest rates rise.
In a YouGov survey commissioned by the Building Societies Association and the Money Advice Trust, 39 per cent of respondents say that they will have to cut spending on holidays and eating out to cope with rate rises, whilst a fifth say that they will be forced to cut back on essentials like clothing and food.
The survey of 2,316 mortgage borrowers also showed that over half (54 per cent) think that the Bank of England’s official Bank Rate will be 2 per cent or lower by mid-2017.
However Bank of England governor Mark Carney has said the Bank Rate will probably rise gradually from its current 0.5 per cent to a more long term normal rate around 3 per cent.
Joanna Elson, chief executive of the Money Advice Trust, comments:
“After all these years, mortgage-payers are in for a big financial shock when interest rates begin to rise. For many, that shock will be too much to absorb – and there is a real risk that we will see a surge in unmanageable debt problems as a result.
“Our message to borrowers is clear – interest rates will rise and that day is coming soon, so now is the time to prepare. Draw up a budget, speak to your lender, and if you do find yourself struggling to repay, seek free debt advice as early as possible.”
Paul Broadhead, head of mortgage policy at the Building Societies Association, comments:
“These results indicate the sensitivity of people’s monthly spending to changes in general household expenditure, indicating that as mortgage rates rise this could have a significant impact on economic recovery.
“Many consumers are only used to a low rate environment which will change and whilst most mortgage rates are not linked quite so directly to the base rate as they used to be, rates will rise as it increases.
“Clearly some of the actions borrowers say they would take may not be within their control, for example working additional hours.
“Our advice to those concerned about interest rate rises is to start thinking about how they will manage the increased costs. This could include creating a household budget, to taking a look at mortgage calculators and rescheduling unsecured loans such as credit cards.”
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