Following the Bank of England’s announcement of a 0.75% rate rise today, StepChange Debt Charity says that mortgage holders on variable rates, and those whose fixed rate deals are coming to an end, will be facing the kind of payment increases that run the risk of fuelling problem debt. There will also be an increasing knock-on effect into the cost of rents.
At present, around one in seven mortgage holders (15%) who seek help from StepChange are in arrears on their mortgage at the time they seek advice – but the knock-on effect of higher mortgage costs means that, even if people manage to keep up on their mortgage, there is a higher risk that they won’t be able to maintain their other financial commitments and pay other bills.
StepChange urges anyone in this position to take advice at an early stage, to try to prevent a build up of problems that then become harder to solve.
The most immediate impact of a rate rise will be felt by mortgage holders, particularly those who are on a variable rate mortgage or whose fixed rate deal is due to end soon. Higher debt servicing costs will also mean landlords seeking to increase rents, and will gradually also be felt in the consumer credit market (although some products, such as credit cards, already have typical rates much higher than the Bank rate).
Richard Lane, Director of External Affairs at StepChange Debt Charity, said:
“Rising rates are the price being paid for high inflation – and both create trouble for people experiencing problem debt. The cost of living is hitting everyone, but is especially hard for households on lower and fixed incomes, while rising rates have a dramatic effect on those mortgage holders rolling off fixed rates who have had little time to plan for much higher costs.
“Current conditions prove the point that debt can affect anyone, and there is no cause for shame or embarrassment about it. We urge anyone feeling the strain to take action by contacting their creditors and a reputable debt advice organisation, who may be able to help in ways you don’t expect. For example, StepChange even has a dedicated mortgage debt advice team – no-one should feel that their situation puts them outside the realm of getting help, and it’s always better to take action on debt problems sooner rather than later.”