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Interest rate rise could push millions of homeowners into financial difficulties

More than one in three UK homeowners fear they will find it more difficult to afford payments on their mortgage or other debts if interest rates start to rise

May 22, 2014

More than one in three UK homeowners fear they will find it more difficult to afford payments on their mortgage or other debts if interest rates start to rise, according to findings of the 2014 Homeowner Survey by the HomeOwners Alliance and Myhomemove, UK’s leading conveyancing provider. Some homeowners feel so financially stretched that they say a rise in interest rates may mean they will struggle to find money for food, or may be forced to sell their homes. Some aspiring homeowners fear a rise in rates may make it more difficult to realise the dream of owning their own home.

The survey, published as expectation mounts that the Bank of England may start raising interest rates soon, shows just how financially vulnerable homeowners are following seven years economic slowdown. The Bank of England Financial Policy Committee is examining what impact a rise in interest rates is likely to have on the housing market, but the survey suggests it could be far-reaching.

Key findings of the 2014 Homeowner Survey, conducted by YouGov, include:

  • More than one in three (34%) UK Homeowners say they fear a rise in interest rates will make it more difficult to afford payments on their mortgage or other bank loans or debts. With 17.1 million homeowners in the UK, that equates to 5.8 million homeowners fearing a rise in rates will make it more difficult to afford payments on their housing debt or other loans/ debts (17.1 million homeowners derived from 26.4 million UK households 2013 Office for National Statistics, 65% own their home 2011 UK Census)
  • 64% of interest-only mortgage holders say they fear rising interest rates will make it more difficult to afford payments on loans and debts – suggesting that they could be more likely to be the most financially stretched group of homeowners. Amongst homeowners with all types of mortgage, the figure is 50%
  • Among  those that are likely to be most concerned are those aspiring to buy their first home — 54% of aspiring homeowners say they fear a rise in interest rates will make it more difficult to afford payments on loans and debts
  • Younger homeowners are more fearful about a rise in interest rates than older homeowners. 49% of homeowners age 25-34 compared to 24% of homeowners age 55 or over say they fear a rise in interest rates will make it more difficult to afford payments on loans and debts
  • Verbatim comments, about the impact a rise in interest rates would have, suggest some elderly savers welcome a rise in interest rates, but worry for their children
  • Regionally, homeowners in the East are more fearful about a rise in interest rates. 47% of homeowners in the East of the UK compared with 34% of UK homeowners nationally fear rising interest rates will make it more difficult to afford payments on their mortgage and other loans/ debts.
  • Among homeowners regionally, those fearful a rise in interest rates will make it more difficult to afford payments on loans/ debts is: 47% in East of UK, 34% in North of UK, 33% in Wales and South of UK, 31% in London, 31% in Scotland, 29% in Midlands

Homeowner comments on the personal impact of rising rates

Verbatim responses to the question “what impact would a rise in interest rates have on you, personally”, illustrate just how vulnerable homeowners may be to a rise in interest rates:

– Push affordability limits of some existing homeowners

  • “Add an extra burden to an already overstretched household budget”
  • “At the minute we can just about pay off mortgage and bills with very little to spare for food; with increased rates we would struggle to find money for food every month.”
  • “Would make it increasingly difficult to pay the mortgage”
  • “I have other debts on top of my mortgage. I will probably be forced to sell and rent” 

– Hinder some aspiring buyers from being able to afford to buy  

  • “Huge impact – it will decrease my chances even more of me being able to buy my first property”
  • I was hoping to start on the property ladder, I would be worried as it is hard enough already to get a deposit and mortgage that is affordable, with higher interest rates, I don’t know if I could afford it”

– Welcome news for pensioners with savings but a concern among some for younger generation

  •  “Because I am an elderly saver, low interest rates have been devastating for me”
  • “For me it will not have an impact as I will complete my mortgage soon…However I am very fearful for my adult children and society at large”
  • “I fear for other family members and friends as they would not be able to pay their mortgage if the rates increased”
  • “Not much for me but I do worry for my children and their ability to have a decent future…”

 

Paula Higgins, Chief Executive of the HomeOwners Alliance, the UK consumer group championing homeowners, said:

“Homeowners are already really struggling to make ends meet, and millions could be pushed into real financial hardship when interest rates start to rise. It shows just how severe the cost of living crisis is that a rise in interest rates could lead to some homeowners struggling to afford food or being forced to sell their homes. The Bank of England needs to tread very carefully to avoid causing widespread financial difficulties.”

Doug Crawford, CEO of myhomemove said, 

If you are worried about rising interest rates, we’d recommend you talk to your mortgage provider now and maybe consider fixing your mortgage to provide greater certainty over the coming months and years.  Interest rates could begin to rise as soon as November of this year. Christmas could be a tough time for the thousands of homeowners who are already on tight budgets. ”

 

Fear of Rising Interest Rates On Ability to Pay Loans/ Debts (2014 Homeowner Survey)

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Fear of Rising Interest Rates On Ability to Pay Loans/ Debts –
By age, homeownership, type of mortgage (2014 Homeowner Survey)

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