Citizens Advice issues interest rate warning
Bank of England governor Mark Carney has started to discuss the prospect of interest rates rising later in 2015.
Such a move would likely cause mortgage lenders to increase rates, something homeowners must be aware of.
Gillian Guy, chief executive of Citizens Advice, has told homeowners to prepare for a rate rise towards the end of the year and to make sure their finances are in order.
“Households need time to adjust to an interest rate increase,” she said.
“Historically low interest rates over the past six years have made it easier for people to manage their finances. A rise in rates will make things harder for those already struggling, and push those who are just about managing over the edge.”
Guy warned policymakers that a sharp rise in rates would mean thousands of people falling into arrears, with house prices and economic conditions still poor in many areas of the UK.
“Our evidence shows one in five homeowners will fall into arrears when interest rates rise.
“To limit the pressure on families’ budgets, any rises in interest should be slow, steady, and come with plenty of warning. Access to money and debt advice will be essential to help prevent large numbers of people falling into problem debt.”
Last week Carney told a Treasury Select Committee that a rate rise was closer than ever.
“I do think there are a variety of factors that mean that the new normal, certainly over the policy horizon over the next three years, is substantially lower than it was previously,” he said. “I see no scenario in which they would move towards historic levels.”