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Borrowers to be hit hard by interest rate rise

Borrowers to be hit hard by interest rate rise

Over a quarter (27 per cent) of people with a mortgage in the UK claim they will be thrown into financial turmoil when interest rates rise.

That is the main finding of new research conducted by YouGov, which said that 39 per cent of people will have to cut back spending on holidays and eating out in order to cope with rate rises.

Worryingly, another fifth said they may even have to cut back on essentials such as clothing and food.

Around 2,316 mortgage  borrowers took part in the survey, with over half (54 per cent) claiming that the Bank of England's official Bank Rate will be two per cent lower the middle of 2017.

However, Governor of the Bank of England Mark Carney said the Monetary Policy Committee expects the Bank Rate to gradually increase from its current 0.5 per cent to a more long-term normal base rate of three per cent.

Commenting on the results, Paul Broadhead, head of mortgage policy at the Building Societies Association, said: "These results indicate the sensitivity of people’s monthly spending to changes in general household expenditure, indicating that as mortgage rates rise this could have a significant impact on economic recovery.  Many consumers are only used to a low rate environment which will change and whilst most mortgage rates are not linked quite so directly to the base rate as they used to be, rates will rise as it increases.    

"Clearly some of the actions borrowers say they would take may not be within their control, for example working additional hours.  Our advice to those concerned about interest rate rises is to start thinking about how they will manage the increased costs."

Among the recommended measures are the creation of a household budget, taking a look at mortgage calculators and even rescheduling unsecured loans such as credit cards.

However, Mr Broadhead also said that any plan needs to be checked to ensure it is realistic.

Joanna Elson, Chief Executive of the Money Advice Trust, added that mortgage-payers could be in for a nasty financial shock when interest rates eventually do rise, warning that the consequences could be too much for some borrowers, meaning there could soon be a substantial rise in the number of people suffering from unmanageabel debt problems.

She said: "Our message to borrowers is clear – interest rates will rise and that day is coming soon, so now is the time to prepare."

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