Last Updated on Mar 31, 2021 by James W
Every time the Bank of England announces a hike in interest rates, cheers and jeers of equal ferocity ring out across the UK. On one side of the fence, investors and savers have the potential to benefit from a welcome windfall. On the other, borrowers and those who are already in arrears can find themselves squeezed harder than ever before.
In this instance, the base rate hike from 0.25% to 0.5% makes it one that most could see coming from a mile off. It hardly landed as a shock to anyone. The same also being said for the expectation of another two increases to follow by the end of the current decade.
All of which will once again come as welcome news to savers and investors. But for the 4 million households making regular monthly mortgage payments across the country, each hike represents another potentially stiff increase in monthly outgoings.
The simple fact of the matter being that if you have a variable rate mortgage on your property, there’s no escaping the effects of the base rate hike. You could always try switching to a different mortgage provider, but this is unlikely to make a great deal of difference as they will likewise have implemented the same hikes as your current lender. The same also being said for the further two hikes expected to follow over the next couple of years.
So…what’s the alternative to falling into a situation where debt and arrears take over?
Well, as far as most experts are concerned, the answer primarily lies in proactive protection. That being – tightening the proverbial purse-strings to whatever extent necessary to compensate for the higher outgoings. As there’s nothing any borrower can do to avoid these interest rate hikes, it’s a case of protecting themselves from potential problems going forwards.
Realistically, the recent hike shouldn’t prove sufficient enough to send most mortgage borrowers across the UK over the edge. With the average outstanding balance currently lying at around £89,000, this will mean an extra £12 per month to be paid per borrower on average. Not the kind of huge increase that will likely prove impossible to shoulder for most. Still, with two more hikes on the horizon, the overall increase in monthly outgoings within the next three years could increase as much as £50 or more.
One of the few things all experts agree on is the importance of taking a proactive approach to both the prevention and resolution of arrears. When arrears occur due to a temporary shortfall, secured loans, bridging finance and other alternative borrowing services can help. Where the issue is likely to be more long-term, it is critically important to speak to the lender directly and work toward an amicable and viable resolution for both parties.
Independent financial advisors and experienced brokers can provide an important lifeline for those concerned with excessive or unsustainable monthly outgoings. If in any doubt, speak to your lender directly as early as possible and book an appointment with an independent advisor.
This article was brought to you by the team at ukpropertyfinance.co.uk.