Higher Rates Will Cause Debt Problems
There is growing concern amongst many of the UK's borrowers that an increase in the UK base rates will cause debt problems particularly amongst first time buyers and homeowners that have stretched themselves in order to buy a home.
It would seem that despite warnings from the Bank of England that buyers should make sure that they cater for an interest rate hike and that mortgages will become more expensive. Now interest rates are likely to go up at then end of this year there is concern that this is going to unleash a wave of new debt problems.
UK borrowers have amassed £1.5trillion of debt
The reason for the concern is that UK borrowers have amassed just under £1.5 trillion worth of debt mainly in the form of mortgages. Because the base rate is so low at just 0.5% it only takes an increase of 0.5% to dramatically increase the monthly payments for many borrowers. It is certainly going to make life much harder for those borrowers that are already struggling.
In many ways whilst the emergency measures taken by the Bank of England over six years ago it has led many borrowers into a false sense of security and many have re-mortgaged their homes with the expectancy that rates will remain where they are. This is naive but many of these people have not put money aside to cover any unexpected bills. It would seem that nothing has changed and that we are likely to revisit the same old problems of the past.
Many borrowers will struggle with debt problems
It is these burrowers that are going to struggle and will resort to take out credit cards and increase their overdrafts in order to make ends meet. This is where the problems will arise because if borrowers are just making ends meet now they are going to have no chance when rates go up this year or next year.
Many borrowers will have the opportunity to switch mortgages to a fixed rate but many will not have the opportunity to do so because they are going to fall foul of tightening lending criteria that has been imposed on them by the Bank of England.
Young borrowers will be affected
Financial experts say that they are most concerned about the borrowing levels of young people as they are likely to be the hardest hit. Young borrowers must take heed and try to start saving now for a rainy day. Many of these borrowers have never experienced a rate rise and it is going to be a shock.
According to figures just released by the Office For National Statistics there are 183,000 borrowers that receive help from the government with payments from the support for Mortgage Interest Scheme. This benefit is also going to be phased out and will also cause hardship for many borrowers