1.75m at risk of mortgage rate rise shock
According to The Money Charity’s analysis The Money Statistics, there have been 1,762,400 first-time buyers since July 2007, the last time the Bank of England increased the base rate.
These mortgagors will never have seen their repayments rise, as interest rates plummeted following the credit crunch. And more than 1.1m of these bought their first property since interest rates hit rock bottom in March 2009, meaning they’ve only ever experienced the very lowest rates.
Mortgagors on a variable rate have benefited from record low interest rates over the past five years. But as inflation has outstripped wage growth, for many this has been welcome respite rather than a chance to pay off more of their loan.
The charity has warned that a rise could catch households by surprise particularly as new mortgages are cheaper than ever. Figures from the Bank of England show that in January new mortgages attracted an average interest rate of just 2.81%, meaning a £150k mortgage would have monthly payments of £697. In September 2008 this was as high as 6.09%, meaning a repayment of £975.
Commenting, Michelle Highman, chief executive of The Money Charity, said: “Recent low interest rates have been great for homeowners with variable rate mortgages and new buyers but they won’t last forever.
“No-one knows when interest rates will rise but when they do mortgage rates won’t be far behind. The 1.75m households who’ve never experienced an interest rate rise could find themselves in for a nasty shock.
“And even those who’ve had mortgages for longer might have got used to their payments staying the same.”