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Pressure eases on MPC to raise rates but not all homeowners are able to relax

22nd October 2014 Print

The chances of an imminent interest rate hike may have receded, but Halifax has found many borrowers remain concerned about the impact a rise could have on their monthly mortgage repayments over the next 12 months.

The Bank of England Base Rate has remained at 0.5% since March 2009 but improving economic figures had led to increased speculation the MPC would vote for a rate rise at the beginning of 2015. A combination of lower than expected UK inflation figures and weaker global economic forecasts may have postponed any increase for now, but on average more than two in five (43%) homeowners said they remain concerned about the impact an interest rate rise would have on their monthly repayments – a slight increase on the last three months.

Those mortgage holders most likely to be concerned about an interest rate rise are women (44%), those aged 35-44 (54% ), those living in London (where 55% are concerned) and those with a variable rate mortgage (52% are concerned).

Craig McKinlay, Mortgages Director at Halifax, said: “As the likelihood of the MPC voting for an interest rate rise early next year recedes, the research shows some homeowners remain concerned about the effect on their monthly mortgage repayments. However, its encouraging to see the majority saying they’re not worried about the potential impact of an increase and that they’d be able to withstand some level of increased payments.

“Nevertheless, as a homeowner its always prudent to regularly examine how you would manage your finances if your monthly repayments were to increase and what you would do should your circumstances change.”

Regional concerns over the impact of rate rises

Levels of concern vary regionally, with 55% of mortgage holders in London reporting that they are concerned about the impact of an interest rate rise on their repayments (12 percentage points higher than the national average).

Conversely, 58% of mortgage holders in the North East, 57% of those in the South West and 66% of those in Wales said they are not concerned about the impact of interest rate rises.

Affordability thresholds

Nationally, one in ten mortgage holders (9%) report they would find it difficult to afford their mortgage repayments if the monthly amount was to increase by any amount at all. Almost one in five (19%) said the tipping point would be an increase of between £25 and £74 a month. A quarter (26%) said their tipping point would be an increase in the monthly payment of between £75 and £149, and 16% say their threshold before finding it difficult to afford the payment would be an amount £150 higher than currently. However, one in five (20%) say they would have no difficulties with any increase (of any size) in their monthly mortgage payment.

Spending cutbacks

If their mortgage payment was £100 higher, a third of mortgage holders (33%) report they would have to reduce spending on everyday essential items such as food, energy, and clothing.

This rises to 40% for Londoners and 40% for those living in North England. While Londoners are equally likely to give up leisure items such as going out (39%) as they would essentials (40%), those in the East of England and the South West are most likely to give up leisure items (both 53% against a national average 63%).