An interesting report from the think tank the Resolution Foundation crossed my path this week which taught me a whole new phrase – “mortgage prisoners”.
These are people the Foundation fears may be trapped with higher mortgage payments as interest rates start to return to normal, because lending conditions have tightened so much they may not be able to shop around and find a new lender.
Higher interest rates have been on the cards for a while now, as the UK has had an astonishing five years with an unprecedented rock-bottom rate of 0.5%. But as they rise higher the Foundation fears that could leave those on lower incomes facing the prospect of not covering their costs, and in extreme cases, facing repossession.
The Foundation has called for the Bank of England, the Government and the Financial Conduct Authority to act now to ease this transition back to more normal interest rates, with a series of recommendations, including ensuring more help is offered to those who took out a mortgage on very low rates who may find themselves one of the estimated 1.3 million additional people who will be spending more than a third of their household income servicing their debt by 2018.
I would add another recommendation to the list – make sure all notifications of interest rate hikes are sent on paper. Keep Me Posted’s research shows more than three in five UK adults want such important notifications sent through the post. Other research has revealed that people are much more likely to act if they receive a paper statement as opposed to an online one: 82% of those who receive bills by post check them immediately on arrival, while 49% said they were more likely to take action when something arrives by post than when reading an online statement.
Given the fragile margins some people are experiencing, when even a small rise in household bills can tip the scales between managing money and spiralling debt, sending a piece of paper explaining changing circumstances seems a small price to pay.
You can read the Resolution Foundation report here: http://www.resolutionfoundation.org/press/