Latest research published in the Daily Mail suggests that 'Millions face becoming 'mortgage prisoners' as interest rate rises to just 3% would make loans unaffordable'. The research goes on to say:
"Around 1.1million households are already facing unaffordable repayments today, and this could almost double to 2.3 million by 2018, based on current market expectations for interest rates"
But what makes this even more worrying is that back in 2010 the then newly formed Consumer Financial Education Body (CFEB) carried out research which showed that:
- around 74% of people with a mortgage admitted they did not know how a 1 percentage point rise in the Bank of England base rate would affect their monthly outgoings
Four years on homeowners have become too comfortable with the idea of an artificially low Bank of England Base Rate of 0.5%, so the above 74% figure is unlikely to have improved.
Interest rates will be going up sooner than most people realise
It's 5 years since the Bank of England (BOE) slashed the base rate to 0.5% to boost the economy in the aftermath of the financial crisis. But the reality is that as the UK economic recovery continues to strengthen then the date of the first interest rate hike is drawing nearer. Think of it like a life support machine, the economy (the patient) has been in a critical condition for a number of years but there are now signs of a strengthening recovery so, much like with a healing patient, support is gradually reduced to aid a full sustainable recovery. For the latest on when the market expects interest rates to rise then read my regularly updated commentary - 'Latest interest rate predictions'.
How much would your mortgage go up by if interest rates rise?
The infographic below gives you an indication of the impact of a 1%, 2% and 3% rate rise will have on the average monthly mortgage repayment. This will then give you a steer as to how much your mortgage might increase.
If however you want to find out how to stress-test your own mortgage in minutes against a interest rate rise then I explain how in my book - '30 Day Money Plan - Sort your finances in just 5 mins a day'. I cover everything from cutting bills, to mortgages, pensions, retirement planning and life insurance. It is only £1.99 on Amazon and one Amazon reviewer kindly said 'it was the best £1.99 they'd ever spent'. Have a read of the reviews for yourself.
Make sure you are not part of the aforementioned 74% who do not know how a 1% interest rate rise will affect their finances.
How much will the average mortgage repayment go up by when interest rates rise?
All information accurate at time of publication
This infographic is provided by the Money Advice Service.