Over three-quarters of homeowners on variable rate mortgages are not planning ahead for increased interest rate payments, new research from Equifax has found.
While 80 per cent of variable-rate mortgage holders believe the Bank of England will raise the base rate in the next 12 months, a total 78 per cent of them are not budgeting for a rate hike.
The online survey, conducted by YouGov, also reveals that 28 per cent of UK homeowners on a variable rate mortgage are unaware of how much their monthly payments will be if interest rates rise by 0.5 percentage points.
The research also shows that more than two-fifths (41 per cent) of homeowners on a variable rate deal would have to cut back on going out, almost a third (32 per cent) would need to cut back on their holidays and 27 per cent would have to cut back on groceries.
Jake Ranson, banking & financial institutions director at Equifax UK & Ireland, said:
“The low interest rate environment has created a false sense of security among many homeowners, particularly for those who have taken out their first mortgage in recent years. Homeowners have had time to get their house in order, yet the research shows a high proportion of homeowners will get a nasty shock once rates rise.
“A bump of 0.5% can have a significant effect on mortgage repayments, forcing unprepared homeowners to seriously rethink their spending habits. There is also a risk of falling into arrears. This research highlights that although many anticipate a rate change, some borrowers are not being realistic about the impact this can have.”
An increase in interest rates has ramifications for those on fixed-rate mortgages as well as variable-rates. Once their fixed-rate term ends, homeowners will be moved on to a standard variable rate which will move in line with interest rate rises.
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