Recent ICM (Institute of Credit Management) research has shown that 32% of all UK homeowners would struggle to meet repayments if interest rates rose by just 2.5%. Despite repeated warnings by the Bank of England, only 14% of those surveyed said that they had made plans for highly monthly payments in the future. Those in London and the south east said that they would struggle the most with 39% saying that their households would be thrown into turmoil by the additional outgoing.
The Bank of England base rate of interest currently sits at a record low of 0.5%, where is has been for the last five and a half years. Yet despite it having remained static for so long, less than half of the 2,050 people surveyed knew what it was, suggesting that people are either ignorant, or are burying their heads in the sand.
Those on fixed rate deals will not be affected, but fixed rates only tend to last for the first few years of the mortgage. Tracker mortgages will faithfully follow the base rate rise and those on the lender’s SVR (Standard Variable Rate) will also feel the pain, although it is up to the individual lender as to how much they decide to hike it.
The Bank of England governor, Mark Carney, has repeatedly stressed that interest rates will go up, but experts believe that this will now not happen until the General Election in May next year. He has also indicated that the base rate will peak at 2.5 to 3%. As an example, a 2% interest rate increase on a 4% variable rate £150,000 mortgage, taken over a 25-year period, would mean an increased payment of £178 per month. Over the course of a full year, that works out at £2,136.
The most recent Bank of England figures for remortgaging shows an increasing number of homeowners staying put; approvals down to 30,500, compared with an average of 31,632 over the previous 6 months. Those who are moving though, are choosing to fix; 90% of new mortgages are of the fixed rate variety. The current situation clearly doesn’t suit everyone though. The ICM survey also found that 45% of those surveyed wanted base rates to rise so that they could see more of a return on their savings.
Sources: thisismoney.co.uk, icm.org.uk (image courtesy of telegraph.co.uk)