The Bank of England’s standard base interest rate is expected to be increased in the beginning of 2015 if not sooner.  The growth of the economy and the continued growth of the housing market will be only part of the factors that come together to convince the majority of the Monetary Policy Committee (MPC) to vote for the first rate hike since March 2009.  When the first hike comes it will only be a part of an overall long and steady increase toward more normal interest rate levels.  The first increase is likely to be a 0.25% bringing the standard rate to 0.75%.

Remortgaging will be crucial to many homeowners as an increase in the interest rate will put further demand on their household budget.  This could be especially true for those that have had their mortgage deal end and are currently sitting on their lender’s standard variable rate.  Currently some lenders have remortgage offers at the lowest level seen in years but that is not expected to last long.  The interest rate offerings will begin to be increased by lenders before the Bank actually increases the standard base rate.

A report from the Building Societies Association and the Money Advice Trust revealed that one in four homeowners will struggle to pay their mortgage when the interest rate increases.  A fifth of those struggling with a rate increase would find the extra payout from their food and clothing budget.  The data suggested that 7% of homeowners would be facing serious difficulties financially when the rate is increased.  Those homeowners that would be in slight financial trouble amounted to 20%.

Many will have to work longer hours to make ends meet.

Mark Carney has warned that the Bank will likely change the historically low 0.5% rate by spring and it will be the first of many gradual increases. 

Joanna Elson, the chief executive of the Money Advice Trust, remarked, “After all these years, mortgage-payers are in for a big financial shock when interest rates begin to rise.  For many, that shock will be too much to absorb – and there is a real risk that we will see a surge in unmanageable debt problems as a result.

“Our message to borrowers is clear – interest rates will rise and that day is coming soon, so now is the time to prepare.  Draw up a budget, speak to your lender, and if you do find yourself struggling to repay, seek free debt advice as early as possible.”