Online broker Freedom Finance is urging borrowers to review their finances after revealing a future interest rate rise could add more than £750 to the average annual mortgage bill.
With the Bank of England hinting that it could raise interest rates for the first time in a decade in order to curb inflation, economists are predicting a hike could come as soon as November.
In response, Freedom Finance has launched its #LowRateLockIn campaign to help customers understand the impact of a rate rise on their mortgage repayments via its dedicated online calculator.
Freedom Finance said that according to its consumer database the average family has a £130,000 mortgage on a 19-year term.
It found that a 1% rise on a lending rate of 2% would equate to an extra £756 a year.
Andrew Fisher, managing director of Freedom Finance, said consumers need to understand that even a small increase in interest rates could have a huge impact on their monthly mortgage payments.
“Once families are armed with the right information they are in a much stronger position to take action to ensure they’re on the best rate for their circumstances and aren’t spending money unnecessarily,” he said.
“It’s easy to feel helpless when encouraging financial news has been so thin on the ground for such a long time. As a country we’ve become use to financial restraint – everyone from the Chancellor of the Exchequer to the average homeowner has been forced to tighten purse strings. Anything which adds costs to the family budget will have an impact, and for many people even a modest increase can significantly erode disposal income.
“While it’s unlikely that we’d see an increase of 1% in one month, it’s perfectly conceivable that in the space of only a few months many people in the UK will have to factor in a substantial extra cost.
“For some that will mean the annual summer holiday has to wait for another year, for others it might mean having to reduce how much they save. Some people are having to balance such a tight budget that the impact could be greater still.”
The Bank of England cut interest rates in August 2016 from 0.50% to their current record low of 0.25%
If the Bank decides to hike interest rates, the knock on effect could see lenders raise mortgage rates accordingly.
However, despite the possibility of a rate hike to 0.50%, many experts expect rates to stay low and any rise to be gentle.
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