How will a rise in interest rates affect you if you’re a homeowner?

If you’ve been keeping an eye on the news lately, you might have seen that interest rates are set to rise in the ‘relatively near term.’ The Governor of the Bank of England, Mark Carney, has suggested that the rise could happen as early as November – a move that would make borrowing more expensive.


It hasn’t been 100% confirmed that rates will rise, but there’s a strong chance they will. So what does this mean for you if you’re a homeowner? Will your mortgage payment go up as a result? Let’s look into this in a bit more detail.

What does this mean for homeowners?

Since the financial crisis of 2007/2008, interest rates have been kept low, in the hope of giving the economy a boost. But now that unemployment levels are low and inflation is rising, the Bank of England may decide to raise the base rate very soon. Whether or not your mortgage payment will rise as a result of this depends on if you have a variable rate mortgage or a fixed rate mortgage.

A fixed rate means your payments will remain the same for a fixed period of time and are not affected by rises in interest rates. There are two types of variable mortgage – standard variable rate and tracker. With both types your monthly payments could rise as a result of the Bank of England’s decision and with standard variable rates, it can go up whenever our mortgage provider decides.

So the advantage of a variable mortgage is that your payments might go down if the base rate goes down. The disadvantage however, is that it can be harder to budget for, as you won’t know for sure what you’ll be paying towards your mortgage in the future.

If your fixed rate mortgage is about to end and you’re worried about the rise, you should speak to your mortgage provider and see what deal is best for your circumstances.

How will the rise affect my DMP?

Your DMP payment is always worked out so that you can afford your other essential bills, like your mortgage and council tax. But what happens if your mortgage goes up because of interest rates?

An increase in a secured repayment, like your mortgage, is classed as a change in circumstances – so you’d need to give us a call. We can look at your budget with you again, and work out what you can afford to pay into your DMP, after allowing for the higher mortgage payment. Remember that putting less towards your debts each month will increase the term of your DMP though.

Is the rise good for the future?

One good thing about the rise in interest rates is that savers will earn more from the money they stash away. So if you’re nearing the end of your plan and you want to start putting the money you would have put towards your debts in a savings account, this could be good news for you.

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