4th June 2015
Almost seven million people will struggle to cover their mortgage repayments if interest rates rise just 1% claims new research from mortgage and loans provider Ocean Finance.
The analysis found that a 1% hike in the cost of borrowing would see homeowners with standard variable rate mortgages pay an additional £55 a month for every £100,000 owed. Interest rates were held at their historical low of 0.5% this month, although economists predict they will begin to climb from Spring 2016.
The survey said when the base rate begins to rise, some 63% of borrowers said they would have to cut back on all non-essential spending to cover the additional cost. The pressure to meet increased mortgage payments would force about 10% of homeowners to consider selling their home to avoid the higher cost of their mortgage.
In addition, while many borrowers are able to reduce spending to cover the increased mortgage cost, a further 13% are concerned they would quickly get into financial difficulty trying to make ends meet.
Almost a quarter of borrowers have already switched to fixed-rate mortgages and a further 16% plan to take fixed-rate mortgages to protect themselves against a rate increase. Worryingly, more than a third of homeowners are not taking any steps to shield themselves, the survey shows.
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% 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.”