Mortgage rates ? the only way is up

04/03/2010

Twenty years ago this week, average mortgage interest rates hit their highest ever levels of 15.4 per cent, leaving hundreds of thousands facing crippling levels of personal debt situation? Take our Debt Calculator test today!'>personal debt, mortgage arrears'>mortgage arrears and negative equity.

The banks and the government insist that the property bust of the 1990s could never happen again, as lending criteria have been tightened sharply since then.

But interest rates could shoot up quickly – last month, research from Barclays predicted that Bank of England rates would hit 6.5 per cent within five years, a short time in terms of home repayments.

And with lending institutions being supported to the tune of £300 billion by the government – which will have to be repaid – experts are warning that how fast rates will rise is extremely hard to predict.

Martijn van der Heijden of HSBC warned this week that borrowers who would have trouble with their mortgages in the event of a three per cent rise in rates should consider taking out a fixed rate mortgage.

EuroDebt director Vance Parsons says: "According to the Halifax House Price Index, prices fell by 1.5% in February, the first decline since June 2009, which does not bode well if interest rates rise and people need to look for debt solutions as disposable income is reduced.

We expect a rise in non-borrowing debt solutions like Debt Management Plan'>Debt Management Plans (DMPs) and Individual Voluntary Arrangements'>Individual Voluntary Arrangements, as we saw in the fourth quarter of 2009."

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