Homeowners unprepared for interest rate rise

Your home may be repossessed if you do not keep up repayments on your mortgage.

Three out of four homeowners (78 per cent) on a variable rate mortgage aren’t budgeting for an increase in mortgage payments, despite talk of a rise in Bank Base Rate next year, according to Equifax.

The online survey conducted by YouGov found that 80 per cent of variable rate borrowers believe there will be a rate increase within 12 months, and 28 per cent are unaware of how much their monthly payments will be if interest rates rise by 0.5 per cent. The impending rate rise threatens to put additional pressure on household expendable income with 27 per cent of homeowners likely to cut back on their grocery shopping in order to keep up with their mortgage payments, should rates rise.

Four out of 10 (41 per cent) respondents state they would need to cut back on going out and 32 per cent would have to cut back on holidays. Only 6 per cent would cut back on their pension contributions in order to meet their mortgage payments.

Jake Ranson, Banking & Financial Institutions Director at Equifax UK & Ireland, said. “The low interest rate environment has created a false sense of security among many homeowners, particularly for those who have taken out their first mortgage in recent years. Homeowners have had time to get their house in order, yet the research shows a high proportion of homeowners will get a nasty shock once rates rise.

“A bump of 0.5% per cent can have a significant effect on mortgage repayments, forcing unprepared homeowners to seriously rethink their spending habits. There is also a risk of falling into arrears. This research highlights that although many anticipate a rate change, some borrowers are not being realistic about the impact this can have.”