The half percentage point rise in Bank rate announced today, while expected, will be a worry to the four million mortgage holders already identified by the Bank of England as facing higher mortgage costs in 2023. As the Bank itself has explained, this includes 670,000 households whose mortgage debt servicing costs after adjusting for cost-of-living spending will exceed 70% of their income, a trigger making them more vulnerable to experiencing payment difficulties.
StepChange Debt Charity is already seeing a slight rise in the proportion of clients who are home-owners, and this is likely to continue in 2023. Tenants currently form the bulk of clients, and they too will be vulnerable to higher rents, as landlords seek to recoup their own higher debt servicing costs.
StepChange CEO Phil Andrew says:
“Rising interest rates may be designed to dampen inflation but this isn’t an instant process, and at the moment the households with the least financial resilience are facing the double whammy of both at the same time.
“It looks as if housing debt will be a particular pressure facing millions of households in 2023. It will be particularly important that forbearance continues to support households through a period of financial stress that they have neither created nor can control.
“Mortgage holders, who had typically experienced low and stable rates for some considerable time before the recent market shocks, are at the front end of the impact. With the FCA already having written out to firms to remind them of their forbearance obligations, it’s important to emphasise that no-one is immune from the risk of problem debt and that help exists if people need it.
“We know from our clients’ experience that it’s human nature to try to cope with financial difficulty until debt problems come to a head, but we very much urge anyone experiencing the beginning of any financial pressure as a result of rising interest rates to get help as early as possible, before problem debt becomes entrenched, and when there are more options available to help you.”