Homes at risk if interest rate rises

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Almost 2 million homeowners wouldn’t be able to afford mortgage repayments following a base rate rise of just 2%, according to research from discretionary investment manager Nutmeg.

This rises to a huge 3 million if the base rate were to rise by just 3%. Over a third (33%) of homeowners wouldn’t be able to afford their mortgage should rates rise to 5.5%, a rate last seen as recently as 2008.

The research, which surveyed over 4,000 UK adults and investigated attitudes to property ownership, also revealed that many homeowners felt rushed into buying a UK property, with one in eight homeowners (12%) concerned that they bought their property at the peak of its value. Many felt rushed into buying their property, with almost a quarter (23%) of all homeowners feeling that they had to get on the property ladder before prices. A further one in eight (12%) bought following pressure from friends and family, and a further 12% felt pressured by society to become a homeowner.

Over the past two years, property prices have increased in many areas across the country. This is perhaps why over two thirds (70%) expect to make money on their property. Reflecting the view that their generation will not be so fortunate to benefit from rising property prices, those aged 18-34 are least hopeful: just under a quarter (24%) expects to lose money on their property. Further to this, 59% expect that their property will give better long-term gains than other investments.

Nick Hungerford, CEO and founder of Nutmeg commented: “It’s worrying to see that so many think they’d struggle paying the mortgage should the base rate rise by as little as 2%. What’s also clear is that the understanding of how interest rates affect payments is incredibly low.

“Simply put, a rise in rates from 1% to 2% is a hundred percent increase, which means a doubling of payment. What’s essential is that people don’t take the decision to buy property lightly and consider the impact it will have on their finances should interest rates rise in the future.”