It’s been nearly seven years now since the last rate rise by the Bank of England.
The latest forecasts from economists suggest we might need to wait until the start of 2017 before interest rates rise from their current level of 0.5%.
They will however need to rise at some point in the future.
When that eventually happens, will your household finances be ready for the rate rise?
Lender TSB has been speaking to homeowners across the UK to understand how prepared Britain is for the rate rise.
Their new report, ‘Getting Britain #ReadyForRateRise’, found that nearly three quarters (72%) of homeowners are likely to see their mortgage payments increase if the base rate rises.
One in five homeowners confessed to having “no idea” how even a small change to interest rates could have an impact on their monthly mortgage repayments.
TSB think that is worrying news for 56% of the home-owning population who say they are already struggling with household bills.
According to Ian Ramsden, Director of Mortgages at TSB:
“The statistics included in TSB’s report are fairly shocking and clearly there’s a lot of work to be done to help Britain’s homeowners understand how they can accommodate a rate rise. But there is no need to panic; a little bit of planning now can make a big difference in the future.
“Our report includes practical hints and tips to help people get to grips with the potential base rate changes that could occur this year.
“We don’t know when the Bank of England will change the base rate, but we do know preparing early and helping homeowners understand their options is the first step in helping Britain get #ReadyForRateRise.”
TSB shared some helpful tips with their research, including speaking to your mortgage lender early if you face financial difficulty, drawing up a monthly budget and getting any existing debts under control.
According to the research, many households would need to make some big changes in order to cope with an interest rate rise and subsequent higher mortgage repayments.
74% of those surveyed said they would budget and make spending cutbacks.
Reducing their supermarket shopping bill was top of the list for almost seven out of 10 people closely followed by eating out less (62%), limiting non-essential spending (62%) and taking cheaper holidays or not going away at all (61%).
Other responses included a switch to a cheaper mortgage (43%), prioritising debt repayments and paying the most important ones first (33%), seeking help from debt advice organisations (14%) and trying to borrowing some money from family or friends (12%).
With the possibility of a rate rise drawing ever closer, understanding how higher interest rates would affect your household budget is an important part of the Financial Planning process.
