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How would a mortgage interest rate rise affect my IVA?

You may have seen in the news recently about the potential of a rise to the Bank of England base rate. This has been at a record low of 0.5% since March 2009.

The base rate is set by The Monetary Policy Committee. They meet up monthly to decide what the Bank of England base rate should be. Banks and mortgage companies then use it to work out the rate of interest they charge to their mortgage customers. What happens at these meetings is important, as many people across the UK have to repay more on their mortgage.

When you’re living to a budget and on an IVA, all your money is already accounted for, so any change to priority bills like a mortgage can be worrying.

When is the mortgage interest rate likely to rise?

We don’t know when the mortgage interest rate will increase, but a lot of experts are predicting a small increase in the second half of 2015.

How will interest rates rise?

An increase in interest rates is likely to occur gradually rather than one sudden leap. It’s typical for the base rate to change by 0.25% at a time, so there’s a steady increase. This might not sound very much, but a 0.25% increase on your mortgage interest rate could mean your monthly outgoings can become a bit more difficult to manage.

Would my mortgage be affected by an interest rate rise?

This will depend on the type of mortgage you have. 

Variable rate (or standard variable rate) mortgages 

It’s very likely that the mortgage companies will put their variable rates up to mirror the rise in the Bank of England base rate, but this isn’t guaranteed. If their variable rate rises, your mortgage payments will go up.

Fixed rate mortgages

If you’re in a fixed rate mortgage then your payment will stay the same for the duration of your fixed rate agreement. Once your deal is over, it's likely that you will return to the mortgage company’s standard variable rate. It's during this time that you're likely to feel the impact of any rises.

Tracker mortgages

If your mortgage tracks the base rate of interest then it’s certain that increases in the base rate will impact your mortgage payment.

What are my options?

You must let us know if you find yourself struggling due to an increased mortgage interest rate, or any other reason. Your IVA caseworker can address any concerns you may have in this area. Get in touch and let your caseworker know your mortgage interest rate has increased. You’ll need to tell them what your new mortgage payment will be and when it will take effect from.

If the increase is small, we might ask you to reduce other areas of your expenditure so you can continue with the same IVA payment. Alternatively, if it’s almost time for your Annual Review, we can have a look at your budget in full and make sure everything is properly accounted for.

If it’s not time for your review, and you can’t manage the change within your budget, then we might be able to review your payments. In some cases, we may call a variation meeting with your creditors so that your monthly payment can be reassessed.

Your IVA is designed to deal with small changes in circumstances, so please don’t worry too much. We will always endeavour to provide you with any help and support you need. 

 

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“I wish to thank your staff for all the great help they gave me when I was in so much debt.
They were a pillar of support to me.” (Leslie, Essex)

Foundation for Credit Counselling Wade House, Merrion Centre, Leeds, LS2 8NG trading as StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority.

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© StepChange Debt Charity 2016