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Homeowners unprepared for interest rate rise

Homeowners with variable rate mortgages remain dangerously exposed to rising interest rates, new research suggests.

Three out of four homeowners on a variable rate mortgage aren’t budgeting for an increase in mortgage payments, according to business insights expert Equifax.

This is despite the fact that four out of 10 believe there will be a rate increase within 12 months.

With a base rate rise looming, this raises concerns over homeowners’ ability to cope once rates do increase.

The online survey, conducted by YouGov, also reveals that 28% of UK homeowners on a variable rate mortgage don't know how much their monthly payments will rise if interest rates increase by 0.5%.

One in four of homeowners say they would have to cut back on their grocery shopping in order to keep up with their mortgage payments should rates rise.

Four out of 10 said they would need to cut back on going out and almost a third would need to cut back on their holidays.

Jake Ranson, banking and financial institutions director, Equifax UK & Ireland, said: “The low interest rate environment has created a false sense of security among many homeowners, particularly for those who have taken out their first mortgage in recent years.

“Homeowners have had time to get their house in order, yet the research shows a high proportion of homeowners will get a nasty shock once rates rise.

“A bump of 0.5% can have a significant effect on mortgage repayments, forcing unprepared homeowners to seriously rethink their spending habits. There is also a risk of falling into arrears.

“This research highlights that although many anticipate a rate change, some borrowers are not being realistic about the impact this can have.”

Ranson warned that an increase in interest rates has ramifications for those on fixed-rate mortgages as well as variable-rates.

“Once their fixed-rate term ends, homeowners will be moved on to a standard variable rate which will move in line with interest rate rises.”


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