With the MPC decision due on Thursday, new research by The MarketPlace at Bradford & Bingley, the UK's largest IFA, shows that interest rate rises are among people's key concerns as we approach 2004. Indeed 15% of those questioned – equating to some 6 million UK adults – said it was their biggest financial concern. Perhaps surprisingly though – despite ubiquitous reports revealing how consumer debt is spiralling and that a property slump may be just around the corner – few people have worries about falling house prices (6%) and the amount of debt they hold (only 4%).
Rate increases don't have to mean you're out of pocket David Bitner, head of product operations at The MarketPlace, commented: "In spite of the recent quarter point rise in Base Rate, interest rates are still historically very low. However, the speculation that rates may rise steadily over the next 12–18 months is a cause of concern for many. Especially those swept up in the property market whirlwind, encouraged to take on larger mortgages because of low interest rates, and are now fearing the changing climate.
"The good news, though, is that even if rates do rise, many borrowers won't be out of pocket if they take action now. Those people languishing on their lender's standard variable rate – approximately 35% of the nation's mortgage holders – could offset the impact of as much as a 2% rise in rates if they remortgaged onto a market-leading deal.
"For those, however, who have serious concerns about affordability and fear they would be over stretched if rates rose to around 5–6%, then they should probably opt for the security of a fixed rate. Fixes are currently about a half to 1% more expensive than their discount or tracker counterparts (as they have already factored in future Base Rate rises) but they do give borrowers peace of mind."
Downbeat reports are failing to sour people's view of the housing market Reports predicting future negative equity and a property market crash have been published recently, however, research carried out by independent agency NOP, shows consumer optimism about house prices to be buoyant. Only 6% said falling house prices is a concern as they head into the New Year – this figure is also down from last year's 10%. In addition, 17% are planning to move house or buy a first home next year.
David Bitner commented: "There was a lot of speculation this time last year about a property crash and, despite a slow down around the time of the Iraq war, this didn't materialise. I think this year people are a lot more confident about the market. While house price inflation is likely to slow, reports of widespread falling prices are premature. There would have to be significant increases in unemployment and interest rates for this to happen – both of which are very unlikely in the near future."
Warnings of consumer debt seem to be hitting home The dangers associated with spiralling consumer debt have hit the headlines regularly, but it seems the message is now starting to hit home. 1 in 3 people questioned want to reduce their debt next year and almost 1 in 5 want to consolidate their debt onto a personal loan to reduce their overall interest payments.
Bitner continues: "There is no doubt that consumer debt is rising. However, from our research it appears that many aren't too worried about it – only 4% of people expressed concerns over the amount of debt they hold. While of course this doesn't mean there isn't an issue, it was encouraging that the results at least revealed many had a prudent attitude to managing their debt. Many people said they are looking to reduce the amount on their credit or store cards next year and others are planning to consolidate their debt to avoid paying exorbitant amounts in interest. This is a very sensible approach, but borrowers should also remember to shop around for the best card rates and personal loans to ensure they're getting a good a deal as possible."
Bitner concludes: "We shouldn't be unduly concerned about the prospect of rate rises. While the Bank of England has expressed concerns over consumer spending and the housing market, an interest rate rise of 1–2% is not likely itself to trigger a housing market slump. While people need to budget for potential increases, it's worth bearing in mind that the Financial Services Authority is still forecasting the low interest rate, low inflation environment to be sustained for some time to come. While rates over the next few years may not be as low as this year, historically speaking they are likely to remain at a relatively low level for the foreseeable future."
