Borrowers can withstand rate rises

The majority of mortgage holders can withstand multiple rate rises in the next couple of years, UK Finance’s analytics manager James Tatch has concluded.

However he raised concerns over those who don’t have any savings or investments to offset the rise, or those who are borrowing money in other ways.

Tatch wrote on the UK Finance website: “While borrowers are unlikely to welcome higher rates, most look well placed to withstand rate increases higher than anything that is likely over the next couple of years.

“But, of course, consumers do not take out mortgages in a vacuum – many will have other loans, savings or other investments, all of which are affected by rate rises, just as mortgages are.

“For those with high savings, the benefits may outweigh the additional mortgage costs. But for those with significant other borrowings, the reverse will be true.”

The Bank of England has reassured that when interest rates rise, it will happen slowly.

In June three members of the Bank’s Monetary Policy Committee voted to increase interest rates from 0.25%.

With interest rates being 0.50% or lower since 2009 Tatch seemed to think the biggest danger is complacency.

He added: “We are in a world where many borrowers – including around 2.4 million who took out their first mortgage in the last 10 years – have never experienced a Bank rate rise as a mortgage borrower.

“And while the vast majority of these will have come to the end of at least one deal rate, most will have then refinanced on to another deal reflecting the continuing ultra-low rate environment, or simply continued on an SVR which, in many cases, will itself be fairly attractive.

“Because of this, there is a risk of complacency – that some will not have factored this in to their financial planning.”

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