A rise in interest rates could have a catastrophic impact on homeowners who are already living on a tight budget, according to figures from leading free debt advice provider PayPlan.
PayPlan has launched its Out of Interest calculator to help clients work out how a rise may affect their monthly mortgage payments.
This follows a national survey conducted by them where 72 per cent of homeowners would not be able to cope with a £100 monthly rise in their mortgage repayments, and 65 per cent believe an interest rate rise would have a ‘severe’ impact on their finances.
Despite 90 per cent of people not planning ahead by speaking to their lenders, 94 per cent are actively worried about how interest rates will impact on their budget, and if there was a rise, over half (54 per cent) would be forced to cut down on their most basic of expenses, including food and heating.
Jane Clack, money advisor at PayPlan, who has been in debt herself, knows first hand how difficult it can be:
“Having the security of a roof over your head is a primary expense for almost everyone. What is concerning is that for those who are experiencing money problems already, that additional rise in interest rates could tip thousands of people over the edge, meaning they’d have to cut down on real essentials.
“Planning ahead is absolutely crucial, so seeking out professional advice is the best way to anticipate how external changes, such as interest rates, would affect your monthly spending.”
Case study – Susan
When Susan gave birth to her son nine years ago, she suffered from postnatal depression and racked up huge bills on her credit cards.
“I can’t say what I spent it on. It was just a coping mechanism,” said Susan. She had also received a £15,000 tax credit overpayment.
At first she managed to keep on top of the repayments but when the recession hit, her husband started to lose work as a builder’s supplier and they quickly found themselves in arrears with their mortgage.
As they struggled to meet the bills, Susan took out short term high interest loans to try and make ends meet.
“Life was awful. I didn’t dare answer the door and had caller ID installed on the phone. I blamed myself and tried to keep it all a secret from my husband by putting the phone on silent and rushing home to intercept any mail before he could get it. I was exhausted.”
It was only when the mortgage company took them to court that Susan revealed everything to her husband.
Susan went into an IVA with PayPlan and is managing life on a budget.
“I’m a completely different person now.” She said. “Debt opens up your eyes to the way you behave with money. Now if I want something, I save up for it first.
“If interest rates increased, pushing my mortgage payments up by £50, I’d struggle but probably cope, but £100 would be completely impossible.
“I haven’t had any advice from my mortgage lender on this, and because I have two secured loans on my house and it would make it quite a precarious position.”
To find out how an increase in interests rates may affect your monthly outgoings go to PayPlan’s Out of Interest calculator.