Ahead of expected interest rate rises, Which? can reveal that one in 20 variable rate mortgage holders could struggle to make ends meet if interest rates rose by 0.25% as anticipated.
A survey from Which? found that a quarter (25%) of mortgage holders had variable rates, meaning next week’s potential rise would directly hit millions of homeowners across the country and see mortgage payments spike within the month.
Around a third (31%) of those on such mortgages said there would be an impact on their day-to-day living if the interest rate rose by the expected 0.25%. While alarmingly, one in 20 of these said such a rise would leave them struggling financially.
With the expected interest rate rise being the first of its kind for over a decade, Which? found that 42% of all those with existing mortgages have been homeowners for 10 year or less. This means that just under half of mortgage holders have never experienced such a rise, raising vital questions around levels of awareness and preparation.
Investigating the potential impact of further rate rises, Which? found:
- More than half (52%) of variable rate mortgage holders said there would be an impact on their day-to-day lives if interest rates increased by 0.75%.
- Over three quarters (78%) of those with a variable rate mortgage said an increase of 2% would have an impact on their day-to-day living.
- More than half of those on fixed rate mortgages expiring within one year are concerned (53%) by an increase of 0.75%.
- This level of concern increases to 81% with a rise of 2%.
Ahead of the first potential rate rise in almost a decade, Which? wants all banks, lenders and other critical firms, such as utility companies to make sure that their customers – especially the most vulnerable – have the advice and support they need to cope with a hike in their repayments. In the meantime, mortgage holders are advised to look at how a rate rise would affect them, and to consider speaking to an adviser on whether remortgaging to a fixed-rate deal, for example, might better suit them. Finally, forward thinking is always advised – so creating a budget can help prepare for any financial impact.
Harry Rose, Which? Money Editor said:
“With one in 20 of variable rate mortgage holders saying they would struggle to make ends meet, it’s important that preparation to deal with the impact of a hike starts now.
“Planning ahead with an effective budget is one simple way to stay on top of your finances. But we’d also like to see banks, lenders and utility companies reaching out to those deemed most vulnerable. For those concerned – speak to your bank and seek urgent advice. Plan now to avoid being caught out.”
Notes to editors
- Populus, on behalf of Which? surveyed 2101 adults online from across the UK. Fieldwork took place between 18th and 19th October 2017. The data has been taken from nationally representative omnibus surveys and has been weighted to the profile of the population.
*Council of Mortgage Lenders July 2017: Around 3.9 million mortgages captured in the RMS data are currently on a variable rate product.
For further information around how a rate hike might impact your mortgage, visit: http://www.which.co.uk/money/mortgages-and-property/mortgages/guides/getting-a-mortgage/bank-of-england-base-rate-and-your-mortgage