What would happen if interest rates were to rise? Could you afford to keep up with your mortgage repayments? According to research from Ocean Finance, a worrying proportion of mortgage payers would find it difficult, with many having never known an environment of higher rates.
According to their calculations, a rate increase of just 1% would see borrowers on standard variable rates paying an additional £55 per month for every £100,000 on the mortgage. That kind of sum could quickly take its toll, and a worrying number of homeowners could struggle to cover their repayments as a result.
Base rate may be on hold at present – and mortgage rates are at record lows – but once it rises, mortgage rates will follow. When that happens, 63% of those surveyed said they'd have to cut back on all non-essential spending (such as weekends away or meals out) to cover the additional cost, but 13% are concerned they'd get into financial difficulty.
It was announced this week that the Bank of England would leave base rate on hold at its record low of 0.5% for a further month, but it's widely expected that it'll start to increase from next year. Aside from cutting back on luxuries, one of the best ways to cope with an impending rate rise is to opt for a low-cost fixed rate mortgage.
This is a tactic that almost a quarter of borrowers have already opted for, and a further 16% are planning to take a fixed rate deal to protect themselves against a future increase. But, more than a third aren't taking any steps to shield themselves, while 10% would be forced to consider selling their home to avoid the rising cost of their mortgage.
Gareth Shilton, Ocean's spokesperson, said it was "inevitable" that rates would rise at some point, and that even though it would be gradual, "every rate hike will have an impact on hardworking 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," he added. "[But], 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."
Get repayment certainty with a fixed rate mortgage
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