Rate rises to hit interest-only mortgages - Mortgages, Money - The Independent

Rate rises to hit interest-only mortgages - Mortgages, Money - The Independent

The Bank of England may have left interest rates on hold this month, but how long can the cost of borrowing be kept so low?

With inflation well above target, the smart money is on a small interest rate rise over the the next couple of months with further rises likely later this year and early next. A rise in rates will bring blessed relief to hard-pressed savers, while most mortgage holders should be able to cope – provided the rises aren't too large or sudden. But there undoubtedly will be borrowers who find even a relatively small rise in rates too much for their finances to bear.

Out of this group the most vulnerable – according to debt charities and mortgage industry insiders – are the millions of homeowners who decided to go for an interest-only mortgages.

"Those on interest-only mortgages are more likely to be on lower incomes, reflecting the relatively smaller monthly mortgage payments required, and therefore are less able to withstand these budget pressures," said Una Farrell from the Consumer Credit Counselling Service, a debt charity.