Risk of Financial Suicide
Wednesday, August 8th, 2007Financial suicide is becoming a real risk for many homeowners as the interest rates continue to increase. Millions of homeowners will be hit hard after interest rates breach the 6% point anticipated by economists.
Soaring property prices have stretched people’s ability to step onto the property ladder. The added burden of increased interest rates and banks withdrawing affordable fixed rate products has made many people stop trying until the housing boom ends.
Ian Kernohan, economist at RLAM, said: “How far are the MPC prepared to go, bearing in mind the lags involved between raising rates and their effect on the economy? I expect one more rise will be enough and the risks to growth and interest rates next year remain to the downside.”
Twenty Five percent of UK mortgagers remain on their lenders’ Standard Variable Rate (SVR) while others have uncompetitive deals, according to Charcol.co.uk. Homeowners who took out a fixed rate a few years ago are also likely to be hit with unmanageable monthly loan repayments when they are forced to remortgage at the new higher rates.
Financial suicide can come quickly. For many, it will come when the interest rate increases above 6% and they continue to purchase a home, or try to apply for another secured loan, reducing their ability to make repayments.
Others are committing financial suicide by applying for IVAs.
Most suicide is committed when people try financial products they are unfamiliar with, or they follow the advice of a friend or colleague at work. This leaves them vulnerable and paying for financial services they do not need, forcing them into insolvency.
The most common way of committing financial suicide is accepting the first product offered. Shopping around can decrease the cost of a loan or mortgage by £100 or more a month.
