Over a third of property owners are apprehensive that when interest rates are eventually raised by the Bank of England, that they will pushed into severe financial uncertainty, a study report has identified.
Consumer organisation HomeOwners Alliance and conveyancing supplier Myhomemove conducted a study to gauge the attitudes of homeowners at present about their financial situations.
And alarmingly, a number of those surveyed identified that they were in fear of when rates do rise, with the primary apprehensions cited being how they will pay for food and whether they will be forced to sell up and move to rented accommodation due to an inability to afford higher monthly mortgage repayments.
The study found that a staggering 34% of homeowners fear that an interest rate rise would lead to them defaulting on their mortgage repayments, suggesting that nearly 6 million current property owners will struggle in the future should rates rise in the next two years.
Young property owners were revealed to be the most apprehensive about a future rate rise, with a monumental 49% of the 25 to 34 year olds surveyed identifying that a rise anytime soon would put them into financial distress, compared to 24% of people who cited the equivalent sentiment who were aged over 55.
The study quoted a participating individual as saying: “At the minute we can just about pay off the mortgage and bills with very little spare for food. With increased rates we would struggle to find money for food every month.”
Another involved person said: “I have other debts on top of my mortgage. I will probably be forced to sell and rent.”
The study also compellingly found that whilst a number of elderely people are looking forward to the positive effect that a rate rise would have on the saving account rates made available to them, that nevertheless they are concerned about the impact it will have on the finances of younger generations.
An elderly homeowner said: “For me it will not have an impact as I will complete my mortgage soon. However I am very fearful for my adult children and society at large.”
ëReal financial hardshipí
In its regional analysis, the study of over 2,500 people and 1,600 homeowners found that people in the east of the country are the most apprehensive about a rise in rates, with 47% of those surveyed identifying that a rise sometime soon would put them into financial hardship.
The news comes at a time when pressure is building on policymakerís, and in particular the Bank of England, to instigate measures that cool down the rapidly overheating housing market in London.
The Office for National Statistics released figures earlier this week which indicated that property prices in the UK had risen in value by an average of 8% in the last year, with the average property price now standing at £252,000.
Even more alarming was their disclosure about the price jump in the price of property in London over the past 12 months, with the ONS identifying a 17% rise that has taken the average property price in the capital to £459,000.
Bank of England governor Mark Carney suggested earlier this month that he was fully prepared to intervene in the property market following growing concerns that a new bubble is imminent and will undermine the economic recovery the country has experienced in the past year.
Carney outlined that the Bank could adopt a number of strategies to address the problem, including introducing a new ìaffordability testî for aspiring mortgage holders or requesting that the government modify its Help to Buy scheme so that people donít take on such large levels of debt through the allure of current cheap borrowing costs.
The Council of Mortgage Lenders (CML) has argued that any measures taken by the Bank to limit demand in the property market would need to be considered ëcarefullyí, in order to prevent any unwanted knock-on effects being incurred that would further damage the market.
Paula Higgins, chief executive of the HomeOwners Alliance, said: “Homeowners are already really struggling to make ends meet, and millions could be pushed into real financial hardship when interest rates start to rise.
“It shows just how severe the cost of living crisis is that a rise in interest rates could lead to some homeowners struggling to afford food or being forced to sell their homes.
“The Bank of England needs to tread very carefully to avoid causing widespread financial difficulties.”
Compare Mortgages with MoneyExpert.