There’s a fear the number of people entering an IVA across the UK could rise if interest rates were to increase as the Bank of England have been discussing.
The Halifax said the recent talk of interest rates rising could “curb” house buying in the UK, due to a recent report it published showing housing price rises slowing.
The annual rise in house prices slowed down to 8.8% in October according to a report from the bank, taking the average house price to £186,135.
The bank believe potential home buyers may hold off purchasing a property fearing the rise in interest rates could make it unaffordable should rates increase.
The Halifax said the economy was growing at a healthy rate but believes mortgage payments could increase in the near future.
Martin Ellis, housing economist at the Halifax said,
“While the chances of an imminent interest rate hike may have receded, a recent Halifax survey found that many borrowers are concerned about the impact a rise could have on their monthly mortgage repayments over the next 12 months,”
The Bank of England have discussed plans to raise interest rates at the start of next year but this will depend on the growth of the economy.
Why IVA Rates Could Increase
Those people who have a variable rate mortgage could find themselves with additional expenditure should interest rates increase, thus leaving less to pay towards their unsecured debts.
Home owners throughout the UK could struggle to repay their mortgage if their monthly payments were to increase, leading to a rise in mortgage arrears.
While all secured debt, including mortgages, should be treated as a priority monthly payment they are often one of the first to be defaulted on.
It is possible to enter an IVA with equity in a property, however if monthly mortgage payments rise it will likely led to unsecured debts also increasing.
There is a significant portion of the population who are currently on a financial edge between managing their debt and requiring a debt solution.
A rise in mortgage payments could see these people having to consider entering an IVA to deal with their unsecured debts, leaving more expenditure for the mortgage.
How An IVA Could Help
An IVA allows people in debt to repay a percentage of it over 5-6 years (depending on equity in a property) and anything still remaining at the end is written off.
If someone’s expenditure increases to a level which stops them being able to repay their unsecured debt an IVA could free up additional money for priority expenditure.
The monthly IVA payment would be proposed based on a persons affordability after essential expenditure, such as a mortgage, is accounted for.