UK mortgage holders are unprepared for potential increases in interest rates, with 56 per cent stating they have no contingency plans in place should interest rates rise, new data reveal.
The Money Advice Service’s research, carried out by The Nursery Research and Planning, found that 47 per cent of 3,007 UK mortgage holders would find it difficult to meet an increase of up to £150 in monthly repayments.
Worryingly, eight per cent said they were unaware that rates are likely to rise at all, increasing to 16 per cent for those under 35 years old.
The Bank of England base rate has been held at 0.5 per cent since 2009 and there have been hints that it is set to rise, with economists predicting an increase next year.
The Mas research revealed that 69 per cent of mortgage holders were ‘financially stretched’ when they took out their mortgage, rising to 77 per cent for those under 35 years old. In addition, 13 per cent admitted they are currently living beyond their means.
As a result, 19 per cent said they would “really struggle” to cover any rise in interest rates in their monthly repayments. Therefore, the vast majority of respondents (84 per cent) said an increase in interest rates would impact their finances.
Furthermore, a significant proportion admitted to understanding little of their current mortgage deal and what impact a rise in rates would have on them.
Around 28 per cent of mortgage holders said they did not know what their current mortgage interest rate is, with 59 per cent saying they had not calculated the impact that a modest one per cent rise would have on them.
Around three per cent admitted that they did not even know what their current monthly mortgage repayments are.
Nick Hill, a money expert at the Money Advice Service, said: “Mortgage holders need to be more mindful of the fact that a rise in interest rates is widely predicted – even for those on a fixed rate, as their deal will come to an end sooner or later.
“Those who purchased their first property in the last five years will have only ever known historically low interest rates, but less than ten years ago the interest rate set by the Bank of England was 5 per cent higher than today.
“The smallest increase in mortgage repayments can make a significant impact on a family budget – especially for those people who are already financially stretched. So it’s a good idea to review your personal finances, start looking at where you can cut back, and plan ahead now.”
Sue Anderson, head of external affairs at the Council of Mortgage Lenders, suggested that by planning ahead now, mortgage holders can get a clear picture of what a rate rise would mean for their own repayments.
“Taking steps in advance to work out what the effect on your payments might be, and planning ahead, will mean that most borrowers will be able to cope by careful budgeting. On an average mortgage of around £120,000, a quarter point rise would typically add around £16 to the monthly payment.”
