While the Bank of England has held interest rates at 0.5 percent since March 2009, it is a fact of life that what comes down must, eventually, go up – and therein lies potential problems for many individuals.
According to research by independent think tank Resolution Foundation, a two-point rise in interest rates would result in 1.3 million households being dangerously in debt if incomes remained the same.
Indeed, an increase of just one percentage point would require households accounting for nine percent of mortgage debt to cut their spending, work longer hours or change their mortgage, with this climbing to 20 percent for a two-point rise.
Although the Bank of England is unlikely to increase interest rates until 2015, banks and building societies may push up mortgage rates earlier to cover their own costs.
The recent statement from the new Governor of the Bank of England, Mark Carney, has stabilised the market for the time being. However, the recent news of CPI inflation increasing further to 2.9 percent only serves to demonstrate that inflationary pressures continue.
We should therefore not take the current low cost of borrowing for granted, as the first hint of a hike in rates will cause mortgage lenders to withdraw their fixed rate products from the market, without prior warning.
Consequently, households should take advantage of the low rates currently on offer and ensure they stabilise their payments by moving their mortgages onto a fixed rate for at least five years and, if practical, even longer. The low cost deals currently available are quite possibly a once in a lifetime opportunity to fix at such a low level – so not taking action now may well prove to be a decision you live to regret.
Demand for such mortgages has already hit an all-time high, as prudent borrowers see the wisdom of forward planning in respect of their mortgage costs.
It is therefore vital that households take action now, and the independent financial advisers at TWP Wealth Management are here to help. Our team will work with you to ensure you have a clear understanding of all the lending options available to you, so you can choose the right mortgage for your individual needs and circumstances.
For more information and guidance on ensuring your household is in the best financial health to face the rate rises that undoubtedly lay ahead, please contact TWP Wealth Management on 01932 704700.