On line estate agent eMoov surveyed over 1,000 UK homeowners and asked them “do you know how much your monthly mortgage payment would increase by, if the interest rate rose by 0.5%?” (sic). 39% of UK homeowners said they were in the dark and unaware as to the consequences.
With an average loan to value ratio of 85% those looking to buy at the average UK house price of £209,383 will be borrowing £177,976. On an interest rate of 1.85% this equates to £741 a month, on a two-year fixed, 25 year mortgage. But should interest rates climb by one percentage point once the two years is up, the monthly payment of this mortgage will rise by 5.9%. In London where the average house price now tops £500,000, this increase of 5.9% could equate to more than £1,000 each year.
Furthermore, on a loan of £475,000 for a property in the capital, a monthly re-payment will be £2,544 at a rate of 4.14%. But should this increase marginally to 4.64%, the cost of a monthly mortgage payment would again rise by over 5% to £2,678 a month. That’s a potential rise of £1,340 a year for London homeowners, once the two year fixed term of their mortgage expires.
Nationally a 95% mortgage on the average house price of £209,383 will see a monthly payment of £1,048 jump to £1,103.
Russell Quirk, CEO of eMoov.co.uk, said: “A jump of £50 to £100 per a month might seem insignificant to most, but for those really borrowed up to the hilt in order to get a foot on the ladder, it could be potentially catastrophic. Despite the comfortable economic climate at present, many UK homeowners are counting every penny in order to get by. So an increase of more than a £1,000 a year could soon snowball into a more substantial debt.
“The reality is that interest rates will rise eventually despite Mark Carney’s comforting words this week and when they do, it’s likely to be by more than 0.5% (sic) over a short period. So regardless of what loan to value ratio you currently have, your monthly payments will increase by at least 5%.
“The key to keeping on top of your mortgage is understanding what you need to pay and when, way in advance of it actually happening. This will give you plenty of time to get your finances in order and keep your head above water.”