Interest rate confusion reigns
A shocking 46% weren’t able to correctly recall the UK’s current base interest rate and only 12% were aware of a recent Bank of England announcement forecasting mortgage rates will rise in October 2015.
This lack of awareness may contribute to UK mortgage holders experiencing financial difficulties in 2015.
Just under half (49.5%) of those with a variable rate mortgage don’t expect or aren’t sure that their mortgage repayments will rise in 2015, despite the Centre of Economic Business Research predicting that homeowners across the UK could face a potential £1.1bn total increase in mortgage repayments by the end of 2015.
This is based on the Cebr’s ‘sharp but potential’ model suggesting three rate rises in 2015 (taking base rate to 1.25% by December 2015), something which is not considered unfeasible by economic experts and which would increase average mortgage repayments for individuals by £118.97.
The second ‘medium’ model focused on a single interest rate rise of 0.25 % in May 2015 and would see homeowners across the UK paying an additional total of £904.2m in their mortgage repayments by the end of 2015 averaging at £101.33 per homeowner.
At a very minimum the Cebr predicts an average annual £81.12 increase in mortgage payments for individuals by the end of 2015. When looking at the UK as a whole, this ‘gentle model’ would result in a total £723.8m annual increase in repayment.
Whatever the increase in repayments, it is clear that as a nation we are underprepared for any interest rate rise with over three quarters (76%) surveyed admitting to not putting aside money for any potential mortgage rate increases.
The survey also found almost half (45%) of UK homeowners felt they may have missed out on better mortgage rates and therefore paid out more because they weren’t sure whether or not to fix or change their mortgage.
Andy Gray, Barclays managing director of Mortgages, said: “Our report shows there is widespread confusion over interest rates and we encourage homeowners to review their current situation and get advice on what their next mortgage step should be.
“We want our customers to remain financially fit in the face of potential interest rate rises in 2015, and believe the impending rise that the Cebr has modelled shows some homeowners may be caught unaware by unexpected increased repayments.”
Those between the ages of 30 and 49 face the largest hike in mortgage repayments, with a potential £362.1m increase in total mortgage repayments.
Regionally, those in South East can expect the biggest rise in payments with a total of £158.9m, despite over three quarters of homeowners (77%) admitting to not putting money aside as a financial buffer to cope with potential rate rises.
Scots are least likely to put money aside for potential interest rate rises, with only one in ten (10 %) saving for their mortgage repayments going up. Welsh homeowners are most likely to save, with a third putting aside money even though their potential mortgage increases not being as large as other areas in the UK.
Interestingly, Londoners are the ‘best off’ in the UK, with the Cebr predicting the capital’s homeowners can expect a reduction of £20 on average per person on their mortgage repayments by the end of next year.
However, when taking the region as a whole, total mortgage repayments increase by £124m as the number of mortgage paying households in the capital increase.
Whilst confusion over mortgage rates is wide spread throughout the UK, homeowners in the West Midlands are most uncertain with two thirds (67 %) having no idea of when the base rate will go up, whilst those in the South West are most savvy, with just under half (45 %) aware of Mark Carney’s current interest rate announcements.
Gray added: “If predictions are accurate, across the country interest rate rises in 2015 will be a reality and the impact could stretch families who already feel financially squeezed.
“So we are working closely with StepChange Debt Charity to address concerns our customers may have over rising interest rates and the effect this may have on their mortgage repayments and wider household finances.”
Mike O’Connor, chief executive for StepChange Debt Charity, said: “Many families’ finances are on the edge and even a small rise in interest rates could have a serious impact. People need to take action now and make sure that whenever those higher repayments come, the end result isn’t a downward slide into problem debt.”