Most experts agree that interest rates will have to start rising from 0.5 per cent at some point and a new poll on
moneysupermarket.com, found that a quarter of people are worried about the impact this will have on their finances.
When rates eventually rise, the effect on consumers' finances could be catastrophic for many borrowers, says
moneysupermarket.com.
Of the people surveyed, over a quarter (27 per cent) admitted to being worried about an increase in Base Rate affecting their mortgage repayments and clearly this could affect a large number of households.
For example, someone sitting on an interest only
mortgage of £150,000 on a 2.5 per cent SVR would currently pay £312.50 per month in repayments. Should the Base Rate rise by one per cent, their repayments would jump by £125 per month to £437.50, landing a hefty blow to their finances.
However, if Base Rate rose to 5.00 per cent - the level it was in October 2008 before it plummeted - the SVR could be 7.00 per cent and this figure jumps to £875, over £562.50 extra per month.
In July 2007, before the onset of the Credit Crunch, Base Rate was even higher at 5.75 per cent. If it returned to this level, borrowers on SVR could see their mortgage repayments more than triple to £968.75.
The moneysupermarket.com poll also reveals that over half of Brits (52 per cent) would welcome an increase in Base Rate to give their savings pots a much needed boost.
"Low interest rates have been fantastic for a large proportion of UK homeowners and subsequently many people have become accustomed to having more disposable income each month,” said Kevin Mountford, head of banking at
moneysupermarket.com.
“However, a Base Rate rise will push up mortgage rates forcing many families to reign in their spending - potentially causing financial problems for many.
"As the poll shows, homeowners are clearly worried about the negative effects of a Base Rate rise. Whilst it is expected that the Base Rate will creep up slowly, consumers need to understand the effect this will have on their finances and plan accordingly.
“Anyone sitting on their lenders’ SVR should consider fixing now before rates begin to rise.
"Savers on the other hand will be hoping Base Rate starts to climb sooner rather than later. But with the economy still fragile, it could be next year before we see any interest rate rises.
“In the meantime, savers should be doing everything they can to try and beat the effects of this low Base Rate environment and make sure they are earning the highest return possible."
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