Rate rise could create ‘mortgage prisoners’

9th June 2015

Almost seven million people will struggle to cover their mortgage repayments if interest rates rise by just 1%, according to research from mortgage provider Ocean Finance.

A 1% rise in interest rates is likely to see borrowers with standard variable rate mortgages pay an additional £55 a month for every £100,000 owed. While interest rates have been held at a historic low of 0.5%, economists predict that they will begin to climb from spring 2016.

If rates rise, approximately 63% of borrowers said they would have to cut back on all non-essential spending, such as weekends away and meals out, to cover the additional costs. A further 13% are concerned they would get into financial difficulties in an attempt to stay afloat.

Almost a quarter of borrowers have switched to fixed-rate mortgages and a further 16% plan to do the same to protect themselves against a rate increase. Worryingly, more than a third of homeowners have not taken any steps to shield themselves, according to the report.

According to the survey, the pressure to meet increased mortgage payments could force approximately 10% of homeowners to consider selling their homes.

Ocean spokesperson Gareth Shilton says: “It’s inevitable that interest rates will rise at some point, whether that happens in spring next year or later in the year. Whilst the rate rise is likely to be gradual and it may take a while to get to a 1% increase, every rate hike will have an impact on hardworking families who are already struggling to make ends meet.

“Many people will feel like mortgage prisoners because their circumstances have changed since they took out their loan and they’ll understandably be concerned about what a potential interest rate rise means for them.

“It’s important to understand that in most cases there are options, so it’s important that anyone who is concerned about a rate increase should seek advice on the best deal available to them.”

*2 year fixed with TSB 1.09% then 3.59% - APRC is 3.3% Max LTV is 60%. Quoted on 27th May 2020.