How Will Borrowers of Large Mortgages Cope If Interest Rates Rise?

For nearly five years, mortgage borrowers in the UK have been able to take advantage of an historically low base rate to cut the monthly cost of their mortgage repayments. The Bank of England Base Rate has been at its historically low level of just 0.5 per cent since March 2009 and for many borrowers this might seem like the norm; but it is anything but a normal rate environment and many experts believe that such a low interest rate cannot be sustained for many more years. Rates are bound to rise eventually and what will that mean for the many borrowers who have never known anything but an extremely low base rate?
When the base rate is eventually put up there are many millions of UK home owners who will be significantly impacted by the rise, particularly those on tacker and variable rate mortgage deals. Yet banks and building societies have for some years been imposing stringent affordability checks when arranging a mortgage so why is there so much concern that borrowers will struggle with their mortgage repayments when the base rate goes up?
Whilst a base rate rise does not appear to be imminent, with many experts not predicting a rise until 2015 or 2016, it is inevitable that it will rise and this could result in difficulties for those with a large mortgage or whose circumstances have changed since they first took out their mortgage. Homeowners with very large mortgages will see the greatest proportional increase in their monthly repayments if base rates return to more typical levels of 4 to 5 per cent.
And if a significant base rate rise happens rapidly it could cause some variable rate or tracker repayments to reach unaffordable levels for some, particularly those who already are stretched financially by their mortgage commitments. This could be a potential problem for all types of home owner from first-time buyers to high net worth mortgage borrowers who stretched themselves with a large mortgage. Experts urge borrowers concerned about possible interest rate increases to seek specialist mortgage advice given that. fixed rate mortgage deals having fallen in cost and may offer some protection against rate rises provided the period of the fixed rate is long enough to encompass the likely point at which rates will rise. There is no point fixing now for 2 years only to come out of the fix just as rates rise. However, fixed rates are a record low levels so it is certainly worth considering your options.
Two year fixed rate deals offer the lowest rates but there is much more to consider than simply the headline rate with a fixed mortgage deal, or any large mortgage deal for that matter. Many borrowers are currently considering longer term deals of 5, 7 or even 10 years to protect themselves against any nasty shocks when the base rate rises. These products will give peace of mind that repayments remain the same every month for those with large mortgages, but don't forget to take account of the penalties imposed for ending a deal early, particularly if your personal circumstances are likely to change.
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