The Financial Policy Committee’s (FPC) latest Stability Report has revealed a worrying sign for borrowers according to Duncan Lawrie Private Bank. The Report, which covers the FPC’s assessment of the outlook for the stability and resilience of the financial sector, has demanded that the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) report back to the Bank of England by September 2013 on the vulnerability of borrowers to sharp upward movements in long-term interest rates.

After four years of low borrowing costs, recent volatility in the markets, following the Fed’s announcement last week on tapering QE, has spurred fears about a normalisation of interest rates and how this could impact borrowers and financial institutions themselves. If rates rose by one percentage point, to 1.5%, the Bank said households accounting for 9% of mortgage debt would need to take action. To afford that sort of rate rise, the Bank said those affected might have to consider earning more money, working longer hours, or cutting essential spending.

Matthew Parden, Managing Director at Duncan Lawrie Private Bank said: “Borrowers must start to consider the possibility of interest rates rising and budget accordingly to avoid overextending themselves.

A simple case of individuals on two per cent interest only mortgages suddenly paying four per cent would see their monthly payments double, potentially into the thousands of pounds for average mortgages, which could end up crippling many households.

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We would advise giving consideration to longer term fixed rates of five years, as opposed to two, where rates remain at all-time lows of under three per cent.

It is important that people act sooner rather than later and look for the best longer term deals around. Budgeting for future unknowns is absolutely fundamental if people want to protect themselves from being burnt.

Phil Maurice, Head of Business Development at Charles Cameron, Independent Mortage Brokers said: “We are seeing a large number of borrowers looking at mitigating risks by locking themselves into fixed rates. Concern is certainly mounting over potential rate rises and the affect this will have on their lifestyle and affordability.

There are other options for borrowers too, such as re-mortgaging to consolidate debt onto a cheaper fixed rate and some lenders are offering ten year fixed rates as demand increases.”

About Duncan Lawrie Private Banking ; Duncan Lawrie is a private bank with offices in Belgravia, Kent, Bristol, the Isle of Man, and Kolkata, India. Duncan Lawrie Private Banking was founded in 1971, and as well as banking, offers a comprehensive range of investment, financial planning, tax and fiduciary services, both in the UK and internationally. The bank’s philosophy is founded on prudence and a long-term perspective. Clients include individuals, companies, charities and trusts. Duncan Lawrie Private Banking is a wholly owned subsidiary of Camellia Plc. Its origins can be traced back to East India, where in the nineteenth century Walter Duncan and Alexander Lawrie were involved in tea estates. Tea gardens in this region are still run today by the Camellia Group.
Duncan Lawrie Private Banking is a trading name of Duncan Lawrie Holdings Limited and its subsidiaries.
It is represented in the UK by Duncan Lawrie Limited and Duncan Lawrie Asset Management Limited whose registered office is 1 Hobart Place, London SW1W 0HU. Registered numbers 998511 and 1160766 respectively and registered in England. Authorised and regulated by the Financial Services Authority.
About Charles Cameron: Charles Cameron is an independent mortgage broker based in the city, focused on private client lending requirements. The company has over 25 years of experience in the mortgage industry and offers lending solutions for residential, investment and commercial property in the UK and in many lifestyle destinations around the world.

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