The Bank of England’s announcement of a 0.5% rate rise brings the base rate to 4.0%, the highest level since the 2008 financial crisis. StepChange Debt Charity says this will come as worrying news for millions of mortgage holders on variable rates, or for those whose fixed rate deals are nearing an end.
StepChange’s latest client data shows 17% of new clients are in arrears with their mortgage, an increase of two percentage points from November to December 2022. For those who may be prioritising keeping up with their mortgage, large increases in monthly payments will also have a knock-on effect on their ability to stay on top of other household bills or credit commitments and leave them vulnerable to problem debt.
A sharp rise in mortgage rates will leave some renters in the same position, as landlords may up rents to cover higher debt servicing costs. Combined with continued inflated prices for energy, food and other essentials, the coming months will be increasingly challenging for many households’ finances.
Richard Lane, Director of External Affairs & Operating Subsidiaries at StepChange Debt Charity, said:
“The continued upward trend in interest rates is putting a significant strain on households, on top of existing cost of living pressures which show little sign of easing.
“For those on the lowest incomes with the least financial resilience, housing arrears, among other types of debt, are a real risk this year. As recently emphasised by the FCA, it’s vital that firms treat borrowers fairly, including tailored forbearance and signposting to free debt advice, alongside proactively identifying customers who may be teetering on the edge of problem debt.
“Financial difficulty can affect anyone at any time, and current circumstances mean there could be thousands of people struggling with debt in silence. We would urge anyone worried about rising mortgage rates and their ability to meet financial commitments to reach out for help as early as possible. Don’t hesitate in contacting your lender or speaking to a reputable free debt advice charity like StepChange who are here to support you.”
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