How will rising interest rates affect mortgage payments?

Following the Bank of England’s decision to lift the interest rate to 1.75%, households are likely to face a hike in monthly payments. Across the UK, around 850,000 properties are on tracker mortgages, which directly follow the Bank of England (BoE) base rate, while 1.1 million are on standard variable rates which follow a rate set by the lender (usually closely follows the BoE’s interest rate).

Analysis of Bank of England data by Mazars shows, UK households are currently paying £18.3bn annually in interest payments on floating rate debt that are likely to be immediately impacted by an interest rate rise. This includes floating-rate mortgages, credit card debt and other unsecured personal lending.

Yahoo, UK.

Further increases in the base rate, would see an even bigger impact. If interest rates were to rise to 2%, household interest payments would rise by a further £4.3bn to £22.6bn.

Individuals need to realise what impact the rise in interest rates will do to their budgets. A number of families are already struggling with the rise in energy bills and food costs and the last thing they need is for their debts to become more expensive.

Most UK borrowers are protected from the a rise in interest rates until their mortgage fixes expire. However, these individuals are likely to feel the pain the next time they come to remortgage their property.

A higher base rate, usually motivates people to save more. If you do have cash to save then shop around for the best savings account. Every penny in additional interest is a bonus.

Savings rates could improve following this rate rise however, this will be offset by the cost-of-living crisis we currently face.

If you have any questions regarding interest rates and how they affect you, then please get in touch.

*Your home maybe repossessed if you do not keep up repayments on your mortgage.

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