With speculation rising that the Bank of England could increase interest rates as early as next month and some lenders already withdrawing their lowest rates, new research shows the majority of borrowers don’t know how it could affect them.
Some 68% of home borrowers don’t know how a base rate rise will affect them or how much they could save by fixing to a fixed rate deal, according to research from lender TSB.
It say that if rates rise by 0.25%, a typical variable mortgage repayment could cost an extra £13 a month and switching to a fixed rate deal could save borrowers £119 per month.
The next meeting of the Bank of England’s Monetary Policy Committee is on 02 November and Governor Mark Carney has dropped his biggest hint yet that a rate rise may not be far off.
It’s been over a decade since Brits last saw a rate rise in July 2007. In that time, almost 2.6 million Brits have become home owners, that’s a whole generation of people who have never experienced a rate rise and who may need more support in understanding how one would affect them.
Borrowers who have taken advantage of fixed rate mortgage deals will not be affected by a base rate increase. However, for people with tracker or variable rate mortgages, a rise would mean an increase to their monthly payments, although this is likely be modest.
The TSB figures show that for a mortgage of £100,000 over 20 year a 0.25% rise from 3.74% to 3.99% would result in paying £13.09 more a month, for a £125,000 loan it would be an extra £16.36, for £150,000 it would go up by £19.63, for a £175,000 it would be a rise of £22.90 and for £200,000 the monthly payment would rise by £26.17.
TSB’s research also shows that 66% of home owners ‘worry’ to some degree about mortgage rates rising and 68% don’t know how a rate rise will affect them. Some 67% of borrowers would consider buying cheaper groceries, 64% would eat out less and 43% would take a packed lunch to work.
The banks says that there is no ‘one size fits all’ solution for the 48% of borrowers who may see their payments increase but a typical borrower with a £100,000 mortgage on a standard variable rate could save £119 per month, or £2,859 over two years, just by switching to a better deal.
‘We don’t know when the Bank of England will change the base rate, but we do know that preparing early is the first step in helping home owners to get ready for a rate rise. There’s no need to panic and no one is suggesting sudden large increases in the base rate but just a little planning now can make a big difference in the future,’ said Ian Ramsden, director of mortgages at TSB.