Latest research from the Money Advice Service indicates that UK mortgage holders are unprepared for potential increases in interest rates.
The survey, of 3,007 UK mortgage holders, found that 56% have no contingency plans should interest rates rise.
47% would find it difficult to meet an increase of up to £150 in monthly repayments. 8% said they were unaware that rates are likely to rise at all, increasing to 16% for those under 35 years old.
Many mortgage holders said that their finances are stretched already. 69% were ‘financially stretched’ when they took out their mortgage – rising to 77% for those under 35 years old. In addition, 13% admitted they are currently living beyond their means. As a result, 19% said they would really struggle to cover any rise in interest rates in their monthly repayments.
Meanwhile, 28% of mortgage holders said they didn’t know what their current mortgage interest rate is, with 59% saying they had not calculated the impact that a modest 1% rise would have on them. 3% admitted that they didn’t even know what their current monthly mortgage repayments are.
84% of respondents said an increase in interest rates would impact their finances. Many would therefore have to take immediate action to cover the increase in repayments. Although 56% admitted they would find the money to cover any increases by cutting back on day-to-day basics, 35% said they would have to use money from their savings, while 15% would find an extra job. 5% would have to turn to credit cards, and 2% said they would take out a payday loan
Nick Hill of 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% 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.
“Unexpected costs often catch people out, however it’s better to be prepared for an interest rate rise, than to be caught off guard. We have two easy-to-use tools on the Money Advice Service website which are incredibly helpful for anyone to see how they can make savings to cover an increase in mortgage payments. Our Mortgage calculator works out how much a rise in rates will cost you in monthly repayments, whilst our Budget planner helps you see what’s left over after you’ve paid important bills and accounted for general living costs.”