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Borrowers Risk Unaffordable Payments When Rates Rise, Warns Think-Tank

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Borrowers risk unaffordable payments when rates rise, warns think-tank Resolution Foundation urges borrowers to prepare now for rate rises by "locking-in" current low rates

Interest rate rises will leave more than a quarter of all mortgage holders facing unaffordable payments unless they take action to "lock-in" current low rates, a think-tank has warned.

More than two million of Britain's 8.4 million mortgagors will be forced to spend more than a third of their post-tax income on mortgage repayments if rates rise to 3pc from 0.5pc by 2018 in line with market expectations, according to analysis by the Resolution Foundation.

This is more than double the current level of 13pc, leaving a household with a £100,000 mortgage around £4,400 worse off by the end of 2018.

Economists said it was important for borrowers to prepare now for rate rises by "locking-in" current low rates. "There is still a window of opportunity to think creatively about the best way of reducing the risk to this vulnerable group while we still have ultra-low interest rates," said Matthew Whittaker, chief economist at the Resolution Foundation.

"But that era is coming to an end relatively soon and the legacy of easy credit and the associated debt-overhang will have to be reckoned with."

The think-tank also warned that 770,000 borrowers - representing 9pc of all mortgagors - could be thrown into financial disaster once rates began to rise. It said tighter monetary policy could leave borrowers who were self-employed, had very low equity in their home, or those who took out an interest-only deal, classed as "mortgage prisoners" because they would be unable to switch to a better deal. It added that stricter rules introduced by the Mortgage Market review in April could make it even harder for these borrowers to insulate themselves against future rate rises.

Borrowers in London were most exposed to affordability risks, with 35pc of mortgagors classed as "highly geared", compared with 18pc in Scotland. However, the Foundation highlighted that just 2pc of borrowers in the capital had less than 10pc equity in their home, compared with 35pc in Northern Ireland.

Bank of England data suggest higher interest rates could affect consumers more than previous cycles because around 65pc of mortgages are now linked directly to Bank Rate, compared with 38pc before the financial crisis.

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Haha, I always find the term "think tank" funny, as if that's all they ever do...sit around, thinking.

In reality, most think tanks are usually geared towards supporting some kind of vested interests, so who are the Resolution Foundation, and where does their funding come from, anyone know? (I'm only asking 'cos I'm too lazy to do the research myself.)

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Haha, I always find the term "think tank" funny, as if that's all they ever do...sit around, thinking.

I always think of a poorly filtered fish tank in which the exotic specimens inside become more and more cut off from the outside world as the water fills up with their own waste products and they end up eating their own sh*t. (and loving it)

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What do they think will happen when they find they are unable to pay the new higher payment amounts?....ask for help via SMI welfare/benefits.....hand the keys back and request a council house or housing benefits.

Rights and entitlements only mean many will think there will be a safety net to support them....except there are not enough council houses anymore, and who do they think can or will pay if they can't pay?..... :unsure:

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What do they think will happen when they find they are unable to pay the new higher payment amounts?....ask for help via SMI welfare/benefits.....hand the keys back and request a council house or housing benefits.

Rights and entitlements only mean many will think there will be a safety net to support them....except there are not enough council houses anymore, and who do they think can or will pay if they can't pay?..... :unsure:

I wouldn't be at all surprised.

Our final report due in June will set out in detail some of the potential responses that might help to support borrower households in a variety of circumstances, and the economic recovery more generally, during the eventual deconstruction of the debt overhang.

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I've been on a think tank before. Idiots to a man/woman. Including me.

How do you get a job on a think tank? I can write a load of bol**cks and use Excel to prove absolutely anything.. are there any other requirements?

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How do you get a job on a think tank? I can write a load of bol**cks and use Excel to prove absolutely anything.. are there any other requirements?

Personal connections.

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I've been on a think tank before. Idiots to a man/woman. Including me.

Ha ha! We are all idiots. Only some are wise enough to spot this! :blink:

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So their advise is to go for a fixed rate soon. A fixed rate is like taking out insurance and like insurance you always pay in more than you get out.

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Resolution Foundation:


http://

www.resolutionfoundation.org/

UK Think Tank of the Year

Address:

Resolution Foundation
23 Savile Row,

London, W1S 2ET

The award of UK Think Tank of the Year was given by:

Prospect Magazine


http://

www.prospectmagazine.co.uk/thinktanks/the-awards/

https://

www.prospectmagazine.co.uk/contact/#.U3yQEyjn3IU

Address:

Prospect Magazine
23 Savile Row
London, W1S 2ET

Compare the addresses.

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How do you get a job on a think tank? I can write a load of bol**cks and use Excel to prove absolutely anything.. are there any other requirements?

Find out who funds the outfit, do a bit of research on their vested interests and then develop a deep and sincere belief in any policy that will support those interests.

And forget you ever knew the meaning of the word 'integrity'.

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Compare the addresses.

That's made my day, Mr Bong!

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