This is a question you should be asking yourself on a regular basis, as it can be easy to feel ‘safe’ when you’re on a fixed rate mortgage or are comfortable with your current rate.
It may seem like an interest rate rise isn’t going to happen any time soon, but even the economists don’t know for sure. For the past few month interest rates have been at a historical low of 0.5%, although economists predict they will begin to climb from next spring. So, it’s best to get prepared now!
We’ve recently undertaken some research* and found that almost seven million people would struggle to cover their mortgage repayments, if interest rates did rise 1%.
A 1% hike would see borrowers with standard variable rate mortgages pay an additional £55 a month for every £100,000 owed.
How would you cope?
If rates did rise, and you began to struggle, you’d probably have to cutback on all non-essential spending first, such as weekends away or meals out, so that you could cover the shortfall. However, this probably won’t be a long-term solution as not being able to enjoy life because you’re sticking to a super tight budget can start to grate after a while.
1 in 7 of those we surveyed, who said they were concerned, admitted that they’d quickly get into financial difficulty trying to make ends meet if interest rates rose by 1%. 1 in 10 confessed they’d even consider selling their home to avoid the higher cost of their mortgage.
What can you do?
Almost a quarter of borrowers we spoke to have already switched to fixed-rate mortgages and a further 1 in 6 plan to take fixed-rate mortgages to protect themselves against a rate increase. Why not speak to a mortgage advisor or your lender to see what options are available to you?
Ocean look at a whole panel of lenders to find the right mortgage deal for your needs, and can help you to find a fixed-rate deal.
You may wish to start putting extra money away so you have some savings to dip into in case you have a period when making your mortgage payments is difficult.
Disclaimer: All information and links are correct at the time of publishing.