Even a small increase in the Bank of England base rate could affect the budgets of millions of households in the UK, new research done on behalf of mortgage and loans provider Ocean Finance shows.
A rate hike of just 1 per cent will see almost 7 million holders of variable rate mortgages pay an additional £55 a month for every £100,000 owed, the study reveals.
The Bank’s Monetary Policy Committee decided to keep the rate unchanged at 0.5 per cent this week but the rate is bound to grow in the future.
Gareth Shilton, Ocean’s spokesperson, says: “It’s inevitable that interest rates will rise at some point, whether that happens in spring next year or later in the year. Whilst the rate rise is likely to be gradual and it may take a while to get to a 1 per cent increase, every rate hike will have an impact on hard working families who are already struggling to make ends meet.
“Many people will feel like mortgage prisoners because their circumstances have changed since they took out their loan and they’ll understandably be concerned about what a potential interest rate rise means for them.
“It’s important to understand that in most cases there are options, so it’s important that anyone who is concerned about a rate increase should seek advice on the best deal available to them.”
A survey conducted among 2,000 UK adults this May found that in case of a 1 per cent increase in the base rate almost two-thirds (63 per cent) of borrowers say they would have to cut back on all non-essential spending, such as weekends away or even meals out, to cover the additional cost.
While many borrowers are able to reduce spending to cover the increased mortgage cost, a further 13 per cent are concerned they would quickly get into financial difficulty trying to make ends meet.
One in ten (10 per cent) of homeowners would even consider selling their home to avoid the higher cost of their mortgage.
It is advisable that mortgage holders take preventative measures before interest rates rise, however, a considerable proportion are not doing much to avoid future risks. The survey shows that more than a third of homeowners are not taking any steps to protect themselves.
Fixed rate products are seen as a good option to avoid any added cost to future mortgage repayments. Almost a quarter of borrowers have already switched to fixed-rate mortgages and a further 16 per cent plan to take fixed-rate mortgages to protect themselves against a rate increase.
