A large number of homeowners in the UK have purchased property and have yet to experience what will occur when the interest rates increase.  They are ill prepared to handle the more expensive interest rates that will cause their monthly repayments to change and their household budgets to tighten.  Most are still yet to feel the relief of the economic recovery and their optimistic outlook at the soon arrival of better financial times could be blinding them to the inevitable enemy at the door.

Experts have released warnings that the interest rate will be increased and as soon as the beginning of next year.  For those mortgage holders that have failed to remortgage at the end of their most recent mortgage deal, the shock may come from out of nowhere.  Moving over to the lender’s standard variable rate (SVR) will have had little impact as most have been low.  Lenders can and will unexpectedly increase their SVR as the Bank draws closer to increasing the standard base rate.  Then homeowners will be taken unaware, will have little notice and will lack the ability to gain a remortgage quickly to counteract interest rate increases.

The new Mortgage Market Review guidelines that went into effect earlier in the year call for lenders to verify the ability of a borrower to afford a mortgage loan.  They must also include a stress test to verify the borrower will be able to afford the loan when interest rates increase.  Therefore, a remortgaging process takes more time to complete and the gap between facing higher interest rates and being able to secure a low rate on a new deal can be lengthy.  Meanwhile, interest rates will be increasing which means the ability to save money will be slipping away.

Homeowners should be preparing now.  Remortgaging should be considered and if not, then planning for the impact of higher interest rates should be a priority.  For those turned down in the past or expecting complicated remortgaging might want to consider a remortgage broker to assist their efforts.