The latest interest rate hike from the Bank of England could put one in ten variable rate mortgages under financial pressure as it could increase monthly mortgage payments by £42 a month.
According to Hargreaves Lansdown, who surveyed around 2,000 people, if the interest rate reaches 1.25%, variable rate borrowers could pay £88 more per month. He added that at a base rate of 1.5% monthly payments could increase by £132.
Estimates are based on a £300,000 repayment mortgage over 25 years with all rate increases passed on and an average standard variable rate of 4.71%.
The report says monthly payments for an average two-year tracker for the same loan and period could increase by £38 this month, £75 at 1.25% and £114 at 1.5%.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said the rate hikes might seem ‘relatively harmless’, but with many people’s finances on the ‘knife point’ they risked being forced into financial difficulties.
‘Possible’ two-thirds of borrowers could be in financial difficulty
Coles pointed to another survey of mortgage payments Hargreaves had carried out which showed 10% of people saying a £50 increase would put them under financial pressure. This extended to a third of respondents at £100 a month, and two thirds said they would struggle with a £200 a month raise.
“Unfortunately, increases of this magnitude are possible,” she said.
She added that while fixed-rate mortgages were ‘protected for now’, about 1.5million people expired this year, and as mortgage prices rise, a third could struggle with the cost. additional.
The report says someone remortgaging at the end of a two-year fixed rate could see their payments go up by £61 a month.
If interest rates were to rise another 0.25%, it could increase payments by £97 and a 0.5% rise could add £134 to monthly mortgage bills.
This was based on a comparison of a £300,000 mortgage at an average rate in March 2020 of 2.29%, then remortgaged at an average rate of 2.72%.