Despite anticipating a rate rise in the next 12 months, the majority of variable rate borrowers are not budgeting for an increase in their mortgage payments, a survey revealed this week.
According to Equifax, which commissioned the survey, 78% of home owners on a variable rate mortgage were unprepared for the impact a rise in rates would have on their financial situation. This is despite 80% expecting UK mortgage rates to increase within 12 months.
Furthermore, 28% of the 400 variable rate home owners surveyed did not know by how much their mortgage payments would rise should rates increase by 0.5%.
Nearly half (41%) of those surveyed said they would go out less in order to cover the larger mortgage payments, while a third said they would forgo their holidays. Only 6% said they would cut back on their pension contributions.
Equifax banking and financial institutions director Jake Ranson said:
“The low interest rate environment has created a false sense of security among many home owners, particularly for those who have taken out their first mortgage in recent years. Home owners have had time to get their house in order, yet the research shows a high proportion of home owners will get a nasty shock once rates rise.
“A bump of 0.5% can have a significant effect on mortgage repayments, forcing unprepared home owners 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.”