1 in 10 Households May Lose Their Home When Interest Rates Rise

A report issued by the Resolution Foundation last month has claimed that 1 in 10 mortgagors will be at risk of being unable to afford their repayments, and may lose their home when interest rates begin to rise. The independent think tank claims that 770,000 households fall into both high risk categories in danger of being imprisoned by their borrowing deals as rate raise over the next four years.

These two groups consist of ‘mortgage prisoners’, who will be trapped in their existing deals and thus unable to insulate themselves from rising rates; and those that will be ‘highly geared’, seeing their mortgage repayments eating up a third of their disposal income by 2018. Anyone in either of these groups will find it difficult when rates rise. Those people unfortunate enough to find themselves in both groups will find it doubly difficult and will therefore be highly vulnerable to repossession.

The Bank of England has scheduled and budgeted for a rate rise in February of next year, though there is a great deal of market speculation this rise may well be postponed until after the 2015 General Election in May. At present, rates are at the incredibly low level of 0.5%, where they have remained for the past 5 years.

However, current Bank of England plans forecast a steady rise over the next few years, settling at around 3% in 2018. This could prove catastrophic for those who find themselves unable to borrow or negotiate better deals due to myriad reasons, such as: low equity on their homes, their possession of interest only mortgages, or even because they are self-employed and thus considered by lenders as not economically viable. Those with high level of outstanding debt will be even more at risk, as they struggle to furnish various repayments when rates rise.

Besides those extremely vulnerable borrowers who are unfortunate enough to find themselves falling into both categories, the think tank points out that a quarter of all mortgagors, which equates to 2.3m households, or 3.5m borrowers, will find themselves at risk of being unable to afford their mortgage repayments if interest rates rise in accordance with current market expectations.

Even as things stand today, there are already 1.1m households that are currently struggling to pay their mortgage. Many of those 1.1m are presently seeking to refinance, in an attempt to improve their circumstances and avoid affordability issues in the future.

Perhaps even more worryingly, in July last year the Resolution Foundation predicted that 1.2m households would be pushed into severe financial hardship when interest rates rose. The fact that this number has almost been reached already, as much as a full year before rates are set to rise, has led to the adjustment of the Foundation’s figures to the proposed 2.3m suggested in this latest report. It does also beg the question as to whether or not even these figures may be conservatively estimated, and may therefore suggest worrying times ahead for the rest of the 8.4m mortgagors in the country.

Again, the expectation is that the majority of those 3.5m borrowers whom the report is currently concerned about will be able to seize on the “window of opportunity” available to them in order to “secure some security over future payments”. The foundation is far more concerned about the more than three quarters of a million borrowers that are both locked in and highly geared.

These worrying predictions came hot on the heels of warnings by the Governor of the Bank of England, Mark Carney, that soaring house prices may result in a recrudescence of unevenly high loan-to-value mortgages, which could cause a worsening of the nation’s ‘debt-overhang’ and consequently destabilise the economy.

Chief economist at the Resolution Foundation Martin Whittaker, who wrote the report, said:

“There is still a window of opportunity to think creatively about the best way of reducing the risk to this vulnerable group while we still have ultra-low interest rates. But that era is coming to an end…and the legacy of easy credit and the associated debt-overhang still has to be reckoned with.”

If you fear that you may be among the 770 000 households that will find themselves doubly vulnerable when interest rates begin to rise, you do have options.

One of these could be to contact a well respected quick house sale company, such as National Homebuyers. We remove all the stress from selling your home because we buy your house directly from you, thus eliminating the risks posed by long, convoluted property chains and allowing you to sell your house fast.

So if you do have concerns about the affordability of your home, come to us. We buy any house, regardless of its condition or location, despite any adverse circumstances you may be experiencing and irrespective of your reasons for wishing to sell.

Contact us by telephone today, or simply click on ‘live chat online’ or fill in the form on this page now.