Bank Rates Rise Hit Borrowers

UK bank rates have been rising much faster than most financial analysts predicted. Many economists expect that UK rates will continue to increase. Experts note that world economy rates have been rising in an effort to curb inflation. The rise in inflation is seen in part as being fueled by high oil and energy prices. The Bank of England's main purpose in raising rates is to control inflation. Unfortunately, this has resulted in a substantial increase in UK housing prices.

With the rise in the bank rate, millions of UK homeowners are now seeing a rise in their mortgage repayments. Many analysts have noted an increase in financial assistance, home repossessions, and families being financially stretched to the limits. Experts say borrowers are taking a serious hit.

Borrowers locked into tracker mortgages will have to pay more for their mortgage. Many lenders have already increased their tracker rates by 0.25 percentage points. New borrowers taking out a loan linked to a standard variable rate (SVR) will see a large repayment increase, and existing borrowers will expect to see their payments soar June 1. An increase of a quarter point will put many low income borrowers in a position where they struggle to make repayments. Some may be forced to sell their homes. Research suggests that millions of mortgage holders will have to remortgage if their monthly repayments take a significant jump. Only those locked into fixed rate deals will be protected from the increase. Some lenders specializing in loans for people with credit history problems have already increased their base rates.

How can I protect myself?

There is no need to be alarmed and make a quick uninformed decision. There are no major UK economists predicting that a recession is approaching. Analysts are urging lenders to be sympathetic toward people who are struggling with payments. When considering a mortgage, make sure you can afford the repayments if rates continue to rise. Experts are advising borrowers and mortgage holders to view the interest rate rise as a signal to get their finances under control. Financial advisors suggest that you have several months salary in a deposit savings account. This should give you a bit of a safety net should your income fall or bills start to accumulate. As well, more Britons have chosen fixed rate mortgages instead of variable rate deals because variable rates are susceptible to the Bank of England base rate fluctuations. As a result, the large number of people with fixed-rate deals should be unaffected by the rising bank rate.

Considerations

No one can say for certain whether or not there are further rate rises on the way. The best way to make sure you can make your mortgage repayments is to modify your spending to reflect a rate increase. It is important to discuss all of your options with a financial advisor. If you are worried you may lose your home, an advisor may have a solution.