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Homeowners in north more vulnerable to interest rate rises


Homeowners in the North of England are at far more risk to interest rate increases than those in the South of England.

A study has shown that homeowners in the north are at more risk because they are more than twice as likely to have a ‘variable-rate mortgage’ than a fixed rate one. This would mean that their mortgage payments will rise if the Bank of England increases interest rates.

Alla Koblyakova, of the School of Architecture, Design and the Built Environment at Nottingham Trent University said that those in the South were far more likely to have a mortgage deal that tied them to a fixed interest rate for a longer period of time than their northern counterparts.

It has been argued that there is a geographical imbalance in the mortgage market. This is because 25% of UK mortgage debt can be attributed within the London area alone and 44% in London and South East England combined.

Ms Koblyakova’s study of 1,000 mortgage holders found that the likelihood of a mortgage holder in the North to be tied to a variable-rate was 78% in comparison to 35% in the South of England, something that she claimed to be a “definitive feature of the UK mortgage market”.

“More sensitive to financial shocks”

Ms Koblyakova said: "As variable-rate mortgages are more sensitive to financial shocks, it is a matter of national economic concern that there is such a geographical imbalance in the way that mortgages are distributed in the UK."

She further outlined the importance of recognising the affect an interest rate increase could have on the poorer regions of the country. She said: "It is very important that policymakers are fully aware of this when considering future monetary policy decisions, as an increase in interest rates is likely to affect poorer regions much more severely than others."

Financial watchdog, The Financial Conduct Authority (FCA) has recently introduced measures which are hoped to prevent future mortgage applicants from purchasing mortgages they might not be able to afford in the future. The ‘Mortgage Market Review’ which was implemented on the 26th April 2014 means that mortgage applicants finances will have to pass a strict ‘stress test’ before a lender can approve a mortgage application.

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Are you planning to apply for a mortgage but are worried about the new rules or your ability to afford one? Contact one of our financial advisers by asking a question online or calling 0800 092 1245.

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