Over half of borrowers will struggle if interest rates rise

According to new research published by the Building Societies Association (BSA), 52 per cent of borrowers say they will struggle or fall behind with mortgage repayments if interest rates rise.

A decision by the Bank of England (BoE) was made earlier this month to keep interest rates at the same level, with an increase expected in 2016. For now this means that borrowers can continue to pay back at the same rates, but an interest rise in 2016 could affect much of the UK.

The survey, undertaken by Canadean Consumer on behalf of the BSA, revealed that one in ten borrowers would experience real financial difficulties with a rise in interest rates. 14 per cent of respondents said that while they would be able to keep up with repayments, it would be a constant struggle financially, and 23 per cent said that they would experience problems from time to time. 

In order to cope with the additional financial burden, 18 per cent of borrowers would have to cut back on essentials such as food and clothing to meet their additional monthly repayments, with a further 15 per cent having to work additional hours to stop themselves from falling behind on mortgage commitments.

With interest having been kept at a record low for over 70 months, at least 1.85 million homeowners have never experienced a rise in rates. With this is mind, the increase could affect the lifestyles of many, and their ability to meet mortgage repayments.

The results of the survey showed that 22 per cent of borrowers would not have to make any changes to their lifestyle to meet additional repayments if interest rates rise. 

Joanna Elson, chief executive of the Money Advice Trust, said: “After years of low rates, borrowers’ minds are beginning to focus on the prospect of higher interest rates, and what this will mean for their finances. Nevertheless, many mortgage-payers are still in for a big financial shock when rates do start to climb – and we remain concerned that many will fall into problem debt as a result. We must not forget that renters, too, are likely to be affected as extra mortgage costs are passed on by landlords."